AGFA Corporation v. The Goldman Sachs Group, Inc. et al
Filing
66
OPINION & ORDER re: (28 in 1:14-cv-03122-KBF) JOINT MOTION to Dismiss State Law Claims filed by JPMorgan Chase & Company, Metro International Trade Services LLC, Henry Bath LLC, The Goldman Sachs Group, Inc., London Metal Excha nge Limited, Pacorini Metals USA LLC, GS Power Holdings LLC, (327 in 1:13-md-02481-KBF) MOTION to Dismiss Consolidated Amended Complaints For Lack of Personal Jurisdiction and Failure to State a Claim filed by LME Holdings Limited, (14 in 1:14-cv-03121-KBF) MOTION to Dismiss the Amended Complaints filed by Henry Bath LLC, JPMorgan Chase & Co., JP Morgan Chase & Co, (12 in 1:14-cv-03121-KBF) MOTION to Dismiss All Complaints on the Merits filed by London Metal Exchange Limited, (113 in 1:14-cv-03116-KBF) MOTION to Dismiss the Amended Complaints filed by Henry Bath & Son Ltd., (338 in 1:13-md-02481-KBF) MOTION to Dismiss First Level Purchaser Plaintiffs' Second Correct ed Consolidated Amended Class Action Complaint For Failure To State A Claim filed by Glencore Ltd., (72 in 1:14-cv-03116-KBF) MOTION to Dismiss filed by Hong Kong Exchanges & Clearing Limited, (12 in 1:14-cv-03122-KBF) MOTIO N to Dismiss All Complaints on the Merits. filed by London Metal Exchange Limited, (109 in 1:14-cv-03121-KBF) MOTION to Dismiss </i filed by Glencore Xstrata PLC, (119 in 1:14-cv-03116-KBF) MOTION to Dismiss Amended Comp laints filed by Glencore Xstrata, PLC, (12 in 1:14-cv-03116-KBF) MOTION to Dismiss All Complaints on the Merits filed by London Metal Exchange Limited, (10 in 1:14-cv-03122-KBF) JOINT MOTION to Dismiss All Federal and State Antitrust Claims for Lack of Antitrust Standing filed by JPMorgan Chase & Company, Metro International Trade Services LLC, Henry Bath LLC, LME Holdings Limited, Pacorini Metals USA LLC, GS Power Holdings LLC, London Metal Exchange Limited, Goldman Sachs Group, Inc., (19 in 1:14-cv-03122-KBF) MOTION to Dismiss Consolidated Amended Complaints for Lack of Personal Jurisdiction and Failure to State a Claim. filed by LME Holdings Limited, (29 in 1:14-cv-03121-KBF) JOINT MOTION to Dismiss State Law Claims. filed by Pacorini Metals USA, LLC, Metro International Trade Services LLC, Henry Bath LLC, The Goldman Sachs Group, Inc., GS Power Holdings LLC, JPMorgan Chase & Co., London Metal Exch ange Limited, (25 in 1:14-cv-03121-KBF) MOTION to Dismiss Plaintiffs' Antitrust Claims for Failure to State a Claim filed by Pacorini Metals USA, LLC, Metro International Trade Services LLC, The Goldman Sachs Group, Inc., GS Power Holdings LLC, Goldman Sachs Group, Inc., (10 in 1:14-cv-03121-KBF) JOINT MOTION to Dismiss All Federal and State Antitrust Claims for Lack of Antitrust Standing filed by Pacorini Metals USA, LLC, Metro International Trade Servi ces LLC, Goldman Sachs Group Inc., Henry Bath LLC, LME Holdings Limited, GS Power Holdings LLC, London Metal Exchange Limited, JP Morgan Chase & Co, (10 in 1:14-cv-03116-KBF) JOINT MOTION to Dismiss All Federal and State Antitrust C laims for Lack of Antitrust Standing. filed by Pacorini Metals USA L.L.C., Henry Bath LLC, JP Morgan Chase & Co., Metro International Trade Services L.L.C., LME Holdings Limited, GS Power Holdings L.L.C., London Metal Exchange Limit ed, Goldman Sachs Group, Inc., (520 in 1:13-md-02481-KBF) MOTION to Dismiss The Direct Purchaser Plaintiffs' Amended Complaint filed by Pacorini Metals AG, (14 in 1:14-cv-03116-KBF) MOTION to Dismiss the Amended Complaints filed by Henry Bath LLC, JP Morgan Chase & Co., JPMorgan Chase & Co, (22 in 1:14-cv-03116-KBF) JOINT MOTION to Dismiss State Law Claims filed by Glencore Ltd., Pacorini Metals USA L.L.C., Henry Bath LLC, The Goldman Sac hs Group, Inc., JP Morgan Chase & Co., Metro International Trade Services L.L.C., GS Power Holdings L.L.C., London Metal Exchange Limited, (102 in 1:14-cv-03121-KBF) MOTION to Dismiss the Amended Complaints filed by Henry Bath & Son Limited, (316 in 1:13-md-02481-KBF) MOTION to Dismiss Plaintiffs' Antitrust Claims for Failure to State a Claim filed by Glencore Ltd., Pacorini Metals USA, LLC, Metro International Trade Services, L. L. C., MCEPF Metro I, Inc., GS Power Holdings LLC, The Goldman Sachs Group Inc., MITSI Holdings LLC, Goldman Sachs Group, Inc., (331 in 1:13-md-02481-KBF) MOTION to Dismiss the Amended Complaints. filed by Pacorini Metals USA, LLC, (333 in 1:13-md-0 2481-KBF) MOTION to Dismiss All Complaints on the Merits filed by London Metal Exchange Limited, (511 in 1:13-md-02481-KBF) MOTION to Dismiss Amended Complaints filed by Glencore Xstrata plc, Glencore Xstrata PLC, (6 in 1:14-cv-03116-KBF) MOTION to Dismiss the Amended Complaints filed by Pacorini Metals USA LLC, (128 in 1:14-cv-03116-KBF) MOTION to Dismiss The Direct Purchaser Plaintiffs' Amended Complaint filed by Pacorini Metals AG , (24 in 1:14-cv-03122-KBF) MOTION to Dismiss Plaintiffs' Antitrust Claims for Failure to State a Claim filed by Metro International Trade Services LLC, The Goldman Sachs Group, Inc., Pacorini Metals USA LLC, GS Power Holding s LLC, Metro International Services LLC, Goldman Sachs Group, Inc., (75 in 1:14-cv-03121-KBF) MOTION for Corrected Motion for Admission Pro Hac Vice of Terence S. Ziegler to Appear Pro Hac Vice . Filing fee $ 200.00, receipt num ber 0208-9784366. Motion and supporting papers to be reviewed by Clerk's Office st filed by Team Ward Inc., (26 in 1:14-cv-03116-KBF) MOTION to Dismiss Plaintiffs' Antitrust Claims for Failure to Sta te a Claim filed by Metro International Trade Services LLC, The Goldman Sachs Group, Inc., MCEPF Metro I, Inc., GS Power Holdings LLC, MITSI Holdings LLC, Goldman Sachs Group, Inc., (447 in 1:13-md-02481-KBF) MOTION to Dismiss . filed by Hong Kong Exchanges & Clearing, Ltd., (503 in 1:13-md-02481-KBF) MOTION to Dismiss the Amended Complaints filed by Henry Bath & Son Limited, (19 in 1:14-cv-03121-KBF) MOTION to Dismiss Consolidated Amended Comp laints for Lack of Personal Jurisdiction and Failure to State a Claim filed by LME Holdings Limited, (309 in 1:13-md-02481-KBF) MOTION to Dismiss the Amended Complaints filed by Henry Bath LLC, JP Morgan Chase & Co, (6 in 1:14- cv-03121-KBF) MOTION to Dismiss the Amended Complaints filed by Pacorini Metals USA, LLC, (341 in 1:13-md-02481-KBF) JOINT MOTION to Dismiss State Law Claims filed by Glencore Ltd., Pacorini Metals USA, LLC, Henry Bath LL C, Metro International Trade Services, L. L. C., GS Power Holdings LLC, The Goldman Sachs Group Inc., London Metal Exchange Limited, JP Morgan Chase & Co, (14 in 1:14-cv-03122-KBF) MOTION to Dismiss the Amended Complaints filed by JPMorgan Chase & Company, Henry Bath LLC, (19 in 1:14-cv-03116-KBF) MOTION to Dismiss Consolidated Amended Complaints for Lack of Personal Jurisdiction and Failure to State a Claim filed by LME Holdings Limited, (6 in 1:14-cv-03 122-KBF) MOTION to Dismiss the Amended Complaints filed by Pacorini Metals USA LLC, (24 in 1:14-cv-03116-KBF) MOTION to Dismiss First Level Purchaser Plaintiffs' Second Corrected Consolidated Amended Class Action Complaint Fo r Failure To State A Claim filed by Glencore Ltd., (312 in 1:13-md-02481-KBF) JOINT MOTION to Dismiss All Federal and State Antitrust Claims for Lack of Antitrust Standing filed by Glencore Ltd., Pacorini Metals USA, LLC, Henry Bath LLC, Metro International Trade Services, L. L. C., LME Holdings Limited, GS Power Holdings LLC, London Metal Exchange Limited, JP Morgan Chase & Co, Goldman Sachs Group, Inc.: For the reasons set forth above, defend ants' motions to dismiss are GRANTED, except for LME Ltd.s motion to dismiss, which is DENIED AS MOOT. Leave to replead is denied as to the Consumer End Users and Commercial End Users. The Clerk of Court is directed to close the motions at ECF Nos. 309, 312, 316, 327, 331, 333, 338, 341, 447, 503, 511, and 520. (Signed by Judge Katherine B. Forrest on 8/29/2014) ***As per instructions from chambers, filed in all member/related cases: 1:13-md-02481-KBF et al. (tn)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
:
IN RE ALUMINUM WAREHOUSING
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ANTITRUST LITIGATION
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:
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KATHERINE B. FORREST, District Judge:
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: August 29, 2014
13-md-2481 (KBF)
and all related cases
OPINION & ORDER
Before the Court are 13 motions to dismiss the antitrust and state law claims
brought by purchasers of aluminum and aluminum products. Plaintiffs allege that
defendants, a commodities exchange, traders and warehouse owners have engaged
in a horizontal conspiracy to restrain the output of aluminum. According to
plaintiffs, defendants together arranged to stockpile aluminum in warehouses in
the Midwestern portion of the United States and delayed load-outs of such
aluminum, causing storage costs to increase. This led to an increase in the Midwest
Premium, a price component that incorporates a number of inputs including storage
costs. Plaintiffs allege that their purchases of aluminum are priced with reference
to the Midwest Premium, and that they therefore paid inflated prices.1
Plaintiffs are not themselves aluminum producers, traders or warehouse
owners. Plaintiffs are not, in short, competitors of defendants in any market. Nor
are they consumers of their products (warrants or trading instruments with regard
1 In addition to these allegations, as discussed below, certain plaintiffs also allege that the
warehouses raised prices for storage and took actions that impacted a regional premium in the
Netherlands. These allegations are not particularly developed. Separately, plaintiffs also assert
state law claims based on the conduct underlying the federal antitrust claims.
to the traders) or services (warehouse storage). They are purchasers at different
levels of the supply/distribution chain of semi-fabricated and fabricated aluminum.
The following plaintiffs have filed complaints: the First Level Purchasers (“FLPs”)
(ECF No. 271 (“FLP Compl.”)); Commercial End Users (ECF No. 242 (“Comm.
Compl.”)); Consumer End Users (ECF No. 227 (“Cons. Compl.”)); Mag Instrument,
Inc. (“Mag”) (ECF No. 226 (“Mag Compl.”); Agfa Corp. & Agfa Graphics, N.V.
(“Agfa”) (ECF No. 272 (“Agfa Compl.”)).2
The motions to dismiss as to each of the operative complaints raise a variety
of common issues: antitrust standing, plausibility and sufficiency of allegations
supporting claims alleging violations of sections 1 and 2 of the Sherman Act, failure
adequately to allege a relevant antitrust market, and an absence of viable state law
claims. In addition, individual motions argue a lack of personal jurisdiction (ECF
Nos. 327-28, 447-48, 503-05, 511-13), or specific allegations tying specific
defendants to the challenged conduct (ECF Nos. 309-10, 327-29, 331-32, 338-39,
447-48, 503-05, 511-13, 520-21). Plaintiffs have, in general, submitted joint briefs
opposing the motions, though in certain instances they have filed separate briefs.
(ECF Nos. 390, 393-95, 397, 399, 401-03, 481, 531, 534, 540, 542, 544, 550.)
Together, the filings on these motions to dismiss consist of more than 2,600 pages of
notices of motion, legal memoranda, declarations, and exhibits, as well as many
2
There were originally over twenty complaints filed and transferred to or consolidated with others
in this Court. A number of plaintiffs agreed to consolidate their actions. Thereafter, consolidated
and/or amended complaints were filed. Recently, Eastman Kodak Co. (“Kodak”) also filed a
complaint. (Eastman Kodak Co. v. The Goldman Sachs Grp., Inc., No. 14-cv-6849 ECF No. 1.)
However, defendants have not yet moved as to that complaint. Accordingly, this Opinion & Order
does not address that complaint directly. However, where there are similarities, any future Court
ruling on that complaint would follow the rationale and determinations herein.
2
more pages of additional letter submissions. The Court held oral argument on the
motions on June 20, 2014. (ECF No. 494.)
Prior to oral argument, the Court requested—and the parties kindly
provided—a factual tutorial on the structure of the industry. This was explicitly
(according to the ground rules set by the Court, ECF No. 302) of no evidentiary
significance. Instead, it was to provide the Court with a basic understanding of
industry players and their respective roles, normative supply/demand dynamics,
pricing structure, and aluminum fabrication, distribution and sale.
The Court has spent significant time in consideration of the motions before it.
The complaints allege, and on this motion the Court accepts as true, that between
2009 and 2012 (which is what the FLPs’ and Consumer End Users’ complaints refer
to as the “Class Period”) (FLP Compl. ¶ 1 (May 1, 2009 forward); Cons. Compl. ¶ 1
(May 1, 2009 forward)), inefficiencies developed in aluminum pricing.3 Traders
became the primary purchasers of LME warrants and futures contracts for
aluminum. LME stored aluminum in the Detroit area determines the level of the
Midwest Premium. As trader rather than user dynamics took root in the LME
warehouses, the level of the Premium became driven by trading dynamics rather
than actual supply and demand of aluminum users. These dynamics included the
arbitrage opportunity presented by decreased demand due to the severe market
downturn, followed by the expectation of higher prices in the future. This “buy low
now to sell higher later” view of LME traded aluminum is alleged to have led
3 The Commercial End Users allege a class period that spans the period from February 1, 2010
forward. (Comm. Compl. ¶ 204.)
3
defendants to take actions designed to maximize their profits—including obtaining
and retaining large inventories of aluminum traded by warrants and futures
contracts (the plaintiffs do not allege that any defendant was a user of aluminum),
and creating load-out queues and delays. A direct result of this was to increase
storage duration, thus storage costs, thereby increasing the Midwest Premium.
The economics of this arbitrage opportunity as alleged by plaintiffs are selfevident. That warehouses which make money from storage found longer storage
durations desirable is only sensible. Why, indeed, would they want anything else?
That traders, who would close out of a position to lock in arbitrage profits were
benefitted by holding to a temporal point when such opportunity was maximized, is
also self-evident. But why traders or warehouse operators would care to, or want to,
increase the Midwest Premium which impacts contractual prices users might pay,
is not at all clear.4 That the combined actions of traders and warehouses to
maximize their profits negatively impacted downstream purchasers through a rise
in the Midwest Premium is clear—but as cast in the complaints, this was an
unintended consequence of rational profit maximizing behavior rather than the
product of conspiratorial design.
For the reasons set forth below, the Court finds that the Commercial and
Consumer End Users lack antitrust standing, and their actions are therefore
dismissed and leave to replead is denied as futile. The actions by the FLPs, Mag,
4 There may well be an economically necessary interaction between the value of trading positions in
aluminum and actual usage. However, none of the allegations in the various complaints describe if,
how or why that exists. In the absence of such allegations, there is a break in the chain between the
actions of the defendants here and the plaintiff users.
4
and Agfa are dismissed with leave to submit a proposed amended complaint not
later than 21 days from the date of this order. If defendants object to the proposed
filing, they shall have 21 days within which to submit memoranda setting forth any
reasons; plaintiffs shall thereafter have 21 days to oppose; and defendants shall
have 14 days thereafter for any reply.
I.
FACTUAL ALLEGATIONS
On these motions to dismiss, the Court accepts the factual allegations in the
complaints as true. Jaghory v. N.Y. State Dep’t of Educ., 131 F.3d 326, 329 (2d Cir.
1997). The Court does not credit “mere conclusory statements” or “threadbare
recitals of the elements of a cause of action,” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009), nor will it give effect to “legal conclusions couched as factual allegations,”
Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007).
Unless otherwise stated, each factual allegation set forth below is contained in one
form or another in each of the operative complaints.5
In deciding a Rule 12(b)(6) motion, the Court may consider facts alleged in
the complaint and documents attached to it or incorporated in it by reference,
Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000), as well as documents that are
integral to the complaint and relied upon in it, even if not attached or incorporated
by reference, Broder v. Cablevision Sys. Corp., 418 F.3d 187, 196 (2d Cir. 2005).
The Court may also properly consider matters of public record of which it may take
5 There are certain instances in which allegations are of necessity limited to the particular level of
the supply/distribution chain referenced in a particular complaint. For instance, allegations relating
to the roles and businesses of the Commercial End Users and Consumer End Users are found only in
their respective complaints.
5
judicial notice. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007) (court may consider “matters of which a court may take judicial notice” on a
Rule 12(b)(6) motion to dismiss); Blue Tree Hotels. Inv. (Canada), Ltd. v. Starwood
Hotels & Resorts Worldwide, Inc., 369 F.3d 212, 217 (2d Cir. 2004) (“[W]e may also
look to public records . . . in deciding a motion to dismiss.”).
A.
The U.S. Aluminum Market
1.
Overview
Aluminum is the most abundant metal on earth. (FLP Compl. ¶ 9; Cons.
Compl. ¶ 40.) It is used in a variety of industries such as construction and
manufacturing, and it is a component of many household and consumer products.
(Agfa Compl. ¶ 3; Mag Compl. ¶ 3; Cons. Compl. ¶¶ 40-43; see Comm. Compl. ¶¶ 9,
49.) Aluminum enters the stream of commerce when large, integrated producers of
aluminum (such as Alcoa and Rio Tinto Alcan) mine the mineral-rich rock bauxite,
extract alumina from it, and then refine the extracted alumina into aluminum.
(Agfa Compl. ¶ 31; Comm Compl. ¶ 46; Cons. Compl. ¶ 40; Mag Compl. ¶ 30.) This
“primary aluminum” may then be bought by independent mills, cable companies,
and extruders, who then roll, draw, or extrude it into sheets, rods, and other forms,
which they then sell. (Agfa Comp. ¶ 32; Comm. Compl. ¶ 48; Mag Compl. ¶ 31.)
But producers are not the only sellers of primary aluminum; American companies
that use aluminum may acquire it from a producer, an independent mill, a trader or
distributor, or warehouses that hold aluminum stock. (Agfa Comp. ¶ 31; Mag
Compl. ¶ 32.)
6
Since 2008, global aluminum production has fluctuated between
approximately 37.5 million and 51 million tonnes6 per year. (Agfa Compl. ¶¶ 34-36;
Mag Compl. ¶¶ 33-35.) Annual production is typically in the vicinity of 44 million
tonnes. (See Agfa Compl. ¶ 36; Mag Compl. ¶ 35.) In each of these years, global
production of aluminum has exceeded global consumption, resulting in a surplus of
aluminum. (Agfa Comp. ¶ 36; Mag Compl. ¶ 35.) According to the FLPs, the
United States actually consumes three times more aluminum than it produces.
(FLP Compl. ¶ 303.) In 2011, the U.S. produced approximately 2 million tonnes and
consumed about 4 million tonnes. (Agfa Compl. ¶¶ 34-35; Mag Compl. ¶¶ 33-34.)
The United States is, accordingly, a net importer of aluminum. None of the
complaints, however, describe the extent to which aluminum in any particular
geography is or could be obtained from another; the extent to which the price,
supply, and demand of aluminum are elastic; the extent to which the plaintiffs are
contractually obligated to pay prices incorporating the Midwest Premium; or
whether they have other commercial options. It is unclear, for instance, whether
aluminum produced and/or fabricated overseas would be subject to the Midwest
Premium, or whether its acquisition by United States purchasers would be
economically feasible.
2.
Aluminum Pricing
The price of aluminum is usually set via a formula rather than a price certain
negotiated by the buyer and seller. (Agfa Comp. ¶ 4; Mag Compl. ¶ 4.) In the
6
A “tonne” is a metric ton (1000 kilograms). It is approximately 110.2% of an American ton.
7
Midwest and other parts of the United States, plaintiffs have paid a common,
standardized benchmark price for aluminum consisting of the cash price of
aluminum purchased on the LME (the LME “Cash Price”) plus the “Midwest
Premium” (also referred to as the “Platts Premium”). (FLP Compl. ¶ 12; see also
Comm. Compl. ¶ 6; Cons. Compl. ¶ 118.) The LME Cash Price is derived from the
LME “Official Price,” defined as the “last bid and offer price quoted during the
second Ring session”7 of the LME and which is quoted for cash (i.e., spot purchase),
three and fifteen month “prompts,” and three forward December “prompts.”8 (Mag
Compl. ¶ 38; see also Agfa Compl. ¶ 4 n.5; Comm. Compl. ¶ 113 n.4.) The LME
Official Price is used as a global benchmark for physical contracts for the delivery of
aluminum. (Agfa Compl. ¶ 39; Mag Compl. ¶ 38; see also Comm. Compl. ¶ 6; Cons.
Compl. ¶ 65.) The LME Cash Price is simply the LME Official Price quoted for
cash. (See Agfa Compl. ¶ 39; Mag Compl. ¶ 38.) The process of pricing aluminum
through LME trading is referred to as “price discovery.” (Agfa Compl. ¶ 41; Mag
Compl. ¶ 40; see FLP Compl. ¶ 151.) Notably, this pricing does not include the costs
of delivery from seller to purchaser. (Agfa Compl. ¶ 41; Mag Compl. ¶ 40; see FLP
Compl. ¶ 11.)
The Midwest Premium consists of the accumulated transport and storage
costs associated with the delivery of aluminum to the Midwestern United States.
The LME’s open-outcry trading floor is referred to as the “Ring.” There are two trading sessions
daily. (Agfa Compl. ¶ 39 n.15; Comm. Compl. ¶ 113 n.4; Mag Compl. ¶ 38 n.19.)
7
8 On the LME, the “prompt date” is the “date by which an LME warrant must be delivered by the
seller and paid for by the buyer of a futures contract,” and is also known as the “settlement date.”
Contract Types, London Metal Exch., https://www.lme.com/trading/contract-types/ (last visited Aug.
21, 2014).
8
(Agfa Compl. ¶¶ 4, 40; Comm. Compl. ¶ 6; Cons. Compl. ¶ 120; Mag Compl. ¶¶ 4,
39.) The Midwest Premium fluctuates based on the dynamics of supply and
demand and changes in transport and storage costs. (Agfa Compl. ¶ 40; Mag
Compl. ¶ 39; see also Comm. Compl. ¶ 104; Cons. Compl. ¶¶ 5(c), 65-66.) A private
publishing company, Platts, publishes a measure of the Midwest Premium based on
data it collects from buyers and sellers of aluminum. (Agfa Compl. ¶ 40; Comm.
Compl. ¶ 57; FLP Compl. ¶ 155; Mag Compl. ¶ 39.) The Midwest Premium reflects
current offers for immediately available aluminum for delivery from both U.S. and
foreign producers, traders, and holders of warehoused aluminum; these offers
incorporate the fluctuating delivery, storage, finance and insurance costs incurred
by purchasers. (Agfa Compl. ¶ 42; Mag Compl. ¶ 41; see also Comm. Compl. ¶ 6
n.2.) The price any particular purchaser pays for aluminum may also reflect the
addition of fabrication or “shaping” premiums. (Agfa Compl. ¶ 4; Mag Compl. ¶ 4.)
The Midwest Premium began to increase in 2009. (Agfa. Compl. ¶ 72; FLP
Compl. ¶ 16; Mag Compl. ¶ 71; see also Comm. Compl. ¶ 112; Cons. Compl. ¶¶ 6869.) It was significantly less than $115 per ton in 2010, but it subsequently
increased to $250 or more per ton. (Cons. Compl. ¶ 101; FLP Compl. ¶ 217.) Put
another way, since 2008 it has increased from 3% to over 14% of the LME Cash
Price. (Agfa Compl. ¶ 72; Mag Compl. ¶ 71.)
9
3.
Inventory Increases During the Great Recession
From the fall of 2007 through 2009, the United States experienced the worst
recession and housing downturn since the Great Depression.9 (See Agfa Compl. ¶
71; Cons. Compl. ¶ 109; Mag. Compl. ¶ 70.) In 2008, stocks of aluminum began
increasing sharply as a result of this recession. (See Agfa Compl. ¶ 53; Comm.
Compl. ¶ 117; FLP Compl. ¶ 14(c); Mag Compl. ¶ 52.) The availability of financing
for commodities transactions also decreased, leading producers and others in the
aluminum supply/distribution chain to convert their available inventories of
aluminum into cash by selling them, often to traders. (Agfa Compl. ¶ 53; Mag
Compl. ¶ 52.) Aluminum warehouses in the greater Detroit area affiliated with the
London Metal Exchange saw their inventory levels increase to “all-time record
levels,” rising sharply in 2008 and maintaining a steady incline through 2012, with
some minor ups and downs along the way. (FLP Compl. ¶¶ 20-21; see also Comm.
Compl. ¶ 97; Cons. Compl. ¶ 97; Mag Compl. ¶ 50.) However, there were no
material spikes in these inventories between February 2010 and September 2012.
(See FLP Compl. ¶ 21; see also Agfa Compl. ¶ 51; Comm. Compl. ¶ 97; Cons. Compl.
¶ 97; Mag Compl. ¶ 50.).
4.
The London Metal Exchange
The London Metal Exchange (“LME”) is the world’s largest non-ferrous
metals market. (Agfa Compl. ¶ 25(a); Mag Compl. ¶ 24(a).) More than 80% of the
world’s non-ferrous metals futures business is transacted through the LME’s
See Stanley Fischer, The Great Recession: Moving Ahead (Aug. 11, 2014) (speech), available at
http://www.federalreserve.gov/newsevents/speech/fischer20140811a.htm (last update Aug. 11, 2014).
9
10
trading platforms and the LME handles total combined trading volumes for all
metals of approximately $61 billion per day.10 (Agfa Compl. ¶ 25(a); Comm. Compl.
¶ 27; FLP Compl. ¶ 126; Mag Compl. ¶ 24 (a).) It is the sole venue for exchangetraded aluminum futures or aluminum forward contracts in the United States.
(Comm. Compl. ¶ 27; Cons. Compl. ¶ 46; FLP Compl. ¶ 9.)
Until December 6, 2012, LME Holdings Limited (“LME Holdings”) owned the
LME. (Comm. Compl. ¶ 28; Cons. Compl. ¶ 34; FLP Compl. ¶ 127.) On that day,
the LME was purchased by Hong Kong Exchanges and Clearing Limited, which
owns the HKEx Group, an integrated trading exchange based in Hong Kong for in
excess of $2 billion. (Agfa Comp. ¶25(a); Comm. Compl. ¶ 28; Cons. Compl. ¶ 34;
FLP Compl. ¶¶ 27, 127-29; Mag Compl. ¶ 24.) Until the LME was acquired by the
HKEx Group at the end of 2012, it had been owned by its members. (Agfa Compl. ¶
25(b); Cons. Compl. ¶ 48; FLP Compl. ¶ 406; Mag Compl. ¶ 24(b).) Among its
previous owner-members were several subsidiaries of defendants here, Goldman
Sachs International (a subsidiary of the Goldman Sachs Group Inc. (“Goldman
Sachs”)), J.P. Morgan Securities PLC (a subsidiary of JP Morgan Chase & Co. (“JP
Morgan”)), and Glencore (UK) Ltd. (a subsidiary of Glencore Xstrata plc
(“Glencore”)). (Agfa Compl. ¶ 25(b); FLP Compl. ¶ 406; Mag Compl. ¶ 24(b).) As a
result of the sale of their interests in the LME, Goldman Sachs was paid $208
million and JP Morgan was paid $260 million. (FLP Compl. ¶ 27; see also Comm.
Compl. ¶ 86; Cons. Compl. ¶ 102.)
The LME trades in aluminum, aluminum alloy, copper, tin, nickel, zinc, lead, NASAAC, cobalt and
molybdeneum. (Agfa Compl. ¶ 25(a); Mag Compl. ¶ 24 (a).)
10
11
The LME groups its members into five categories. (See Agfa Compl. ¶ 25(b);
Cons. Compl. ¶ 49; Mag Compl. ¶ 24(b).) Goldman Sachs, Glencore, and JP Morgan
each fall into different categories. (Agfa Comp. ¶ 25(b); Cons. Compl. ¶ 49; Mag
Compl. ¶ 24(b).) Much of the work of the LME is done through various committees
composed of, inter alia, members and/or their affiliates. (Agfa Compl. ¶ 25(c); FLP
Compl. ¶ 360; Mag Compl. ¶ 24 (c); see also Comm. Compl. ¶ 227.)
Aluminum is traded on the LME through the purchase and sale of futures (or
forward) contracts. (FLP Compl. ¶ 145; see also Cons. Compl. ¶ 163.) An LME
futures contract represents a promise by the seller to deliver a quantity of
aluminum to a buyer on a certain future date. (See Agfa Compl. ¶ 45; FLP Compl. ¶
146; Mag Compl. ¶ 44; see also Comm. Compl. ¶ 53; Cons. Compl. ¶ 54.) The
delivery by the seller (or “short”) of a “warrant” to the buyer (or “long”) represents
delivery of the corresponding quantity of physical aluminum. (See Agfa Compl. ¶
45; Comm. Compl. ¶ 53; Cons. Compl. ¶ 54; FLP Compl. ¶¶ 146, 148; Mag Compl. ¶
44.) A “warrant” is a standard, bearer document of title, corresponding with a
particular lot of metal in the warehouse; it specifies the lot’s brand, type of metal,
warehouse, and location. (Agfa Compl. ¶ 45; FLP Compl. ¶ 146; Mag Compl. ¶ 44;
see also Comm. Compl. ¶ 53; Cons. Compl. ¶ 53.) Warrants are not interchangeable
(Comm. Compl. ¶ 53; Cons. Compl. ¶ 53; FLP Compl. ¶ 146), but they are
standardized, which makes them fungible and therefore freely tradeable (Agfa
Compl. ¶ 45; Mag Compl. ¶ 44; see also Comm. Compl. ¶ 53). As a result, there is
an ongoing swapping and trading of warrants for aluminum in different
12
warehouses. (See Agfa Compl. ¶ 45; Mag Compl. ¶ 44.) Yet the vast majority of
aluminum traded on the LME is never physically transferred to a user; instead,
when a futures contract comes due on its prompt date, it is “settled” with an offsetting trade. (FLP Compl. ¶ 149.)11 More than 99% of the LME aluminum
contracts are satisfied or liquidated by offsetting trades. (Comm. Compl. ¶ 54; FLP
Compl. ¶ 149.) It is through this trading process that price discovery on the LME
occurs. (FLP Compl. ¶ 151.)
In the remaining 1% of LME futures transactions (those not settled through
offsetting trades), if the seller owns more than a single warrant (as typically will be
the case), it has the choice of which warrant (and therefore which corresponding lot
of aluminum) it wants to deliver on the prompt date. (FLP Compl. ¶ 152.) Since
the seller has the ability to choose which warrant to settle, the price of LME
forward contracts is influenced by the least valuable warrant in all of the LME
warehouses globally. (FLP Compl. ¶¶ 152-53.) LME aluminum futures contracts
are determined by many other factors as well, including the fundamentals of supply
and demand, trading perceptions in the market, and other factors including, inter
alia, strategic bidding by traders. (FLP Compl. ¶ 154.) In the United States, 97% to
99% of all aluminum futures contract trading is conducted on the LME. (Comm.
Compl. ¶ 52; Cons. Compl. ¶ 163; FLP Compl. ¶ 154.) The vast majority of
aluminum trading activity on the LME takes place among banks, hedge funds and
traders, rather than users of aluminum. (Agfa Comp. ¶ 25(a); Mag Compl. ¶ 24(a).)
11 A large amount of the inventory in Detroit area warehouses is owned by hedge funds, banks, and
traders. (Agfa Compl. ¶ 59; FLP Compl. ¶ 383; Mag Compl. ¶ 58.)
13
In conjunction with its operation of the aluminum futures trading platform,
the LME approves and lists a global network of more than 700 warehouses
worldwide (“LME warehouses” or “LME-approved warehouses”). (Agfa Compl. ¶¶ 6,
25(e); Comm. Compl. ¶ 27; Mag Compl. ¶¶ 6, 24(e); see also Cons. Compl. ¶¶ 5152.) The LME has agreements with the owners of these warehouses. (Comm.
Compl. ¶ 189; FLP Compl. ¶ 285.) Approximately 200 of those warehouses are
located in the United States, including the Midwest. (Agfa Compl. ¶ 43; Mag
Compl. ¶ 42; see FLP Compl. ¶¶ 19-20.) The LME’s storage network holds over five
million tonnes of aluminum in LME warehouses worldwide, more than the total
amount of aluminum consumed in the United States in a year. (Agfa Compl. ¶ 6;
Mag Compl. ¶ 6.) LME warehouses are suppliers of last resort to users of physical
aluminum. (Agfa Compl. ¶ 46; Comm. Compl. ¶ 115; FLP Compl. ¶ 17; Mag Compl.
¶ 45.)
Only LME warehouses may deliver and cancel warrants for LME-traded
aluminum. (Agfa Compl. ¶ 45; FLP Compl. ¶ 380; Mag Compl. ¶ 44.) The LME
certifies, approves and enters into agreements with LME warehouse operators.
(Cons. Compl. ¶ 83; FLP Compl. ¶ 156.) It had such agreements with Metro
International Trade Services LLC (“Metro”) during the Class Period. (FLP Compl. ¶
156.) The LME’s agreements with Metro were reflected in two key documents: (1)
the LME Warehouse Notice Terms and Conditions, and (2) the LME Warehouse
Notice Disciplinary Handbook. (Cons. Compl. ¶ 86; FLP Compl. ¶ 158.)
14
An LME warehouse may only issue a warrant once a specific lot of aluminum
has been delivered or “checked into” the warehouse. (See Agfa Compl. ¶ 45; Mag
Comp. ¶ 44) The cancellation of a warrant leads to the lot being earmarked for
delivery out of the warehouse. (Agfa Compl. ¶ 45; FLP Compl. ¶ 147; Mag Compl. ¶
44.) Once the warrant is cancelled, the load-out process begins (FLP Compl. ¶ 170),
and the lot is placed in line to be loaded out of the warehouse and transported to its
owner’s chosen destination (see FLP Compl. ¶¶ 215, 252).
Warehouses earn revenues from storage fees; thus, increased inventory leads
to increased revenue, and increasing the average duration of storage increases
revenues. (See Comm. Compl. ¶ 67; FLP Compl. ¶¶ 22-23.) The LME shares in the
storage revenues of its approved warehouses. (See Comm. Compl. ¶ 67; Cons.
Compl. ¶ 51; FLP Compl. ¶ 24.)
B.
The Parties
1.
Defendants12
Defendants consist of LME Holdings,13 a group of financial and trading
entities (the “trader defendants”), and companies that own and operate certain
LME warehouses (the “warehouse defendants”).14
12 In their complaints, plaintiffs frequently make allegations regarding affiliated entities under a
single name. For instance, plaintiffs sometimes refer to “Goldman” when it is clear that Metro is the
legal entity whose actions are described. (See, e.g., FLP Compl. ¶ 158.) As there are no allegations
suggesting any lack of attention to corporate formalities, the grouping of entities in this manner is
without support and is therefore conclusory. Grouping entities without providing factual support for
doing so (other than the mere fact of common ownership) cannot support specific references to
specific entities, which are necessary for the Court to evaluate the sufficiency of the allegations.
Thus, where possible, the Court references the specific entity that is the subject of the factual
allegations.
The London Metal Exchange Limited (“LME Ltd.”) has also filed a motion to dismiss all
complaints on the merits. (ECF No. 333.) On August 25, 2014, the Court granted LME Ltd.’s motion
13
15
a)
The Trader Defendants
Goldman Sachs is a global investment banking, securities, and investment
management firm. (Comm. Compl. ¶ 29; Cons. Compl. ¶ 20; FLP Compl. ¶ 116.) It
was a shareholder of the LME during the Class Period until the HKex Group
acquired the LME in December 2012. (Agfa Compl. ¶ 25(b); Comm. Compl. ¶ 29;
Cons. Compl. ¶ 20; FLP Compl. ¶ 117; Mag Compl. ¶ 24(b).)
Glencore15 is a commodities trading and mining company that engages in the
production, storage, transportation, marketing, and trading of aluminum and other
metals. (Agfa Compl. ¶ 22; Comm. Compl. ¶ 35; Cons. Compl. ¶ 28; FLP Compl. ¶
132; Mag Compl. ¶ 21.)16
JP Morgan is an investment bank and financial services firm incorporated in
Delaware with its principal place of business in New York. (Cons. Compl. ¶ 24; FLP
Compl. ¶ 137; see also Agfa Compl. ¶ 20; Comm. Compl. ¶ 32; Mag Compl. ¶ 19.)
Blythe Masters, the head of JP Morgan’s commodities business, is alleged to have
stated, “[j]ust being able to trade financial commodities is a serious limitation
because financial commodities represent only a tiny fraction of the reality of the
real commodity exposure picture . . . . We need to be active in the underlying
to dismiss on sovereign immunity grounds. (ECF No. 564.) Accordingly, the LME’s motion to
dismiss all complaints on the merits is DENIED AS MOOT.
14 The FLPs also allege that one or more Jane Doe defendants may have been participants in the
unlawful conspiracy, and/or that plaintiffs may have purchased aluminum from such entities. (See
FLP Compl. ¶¶ 142-44.) But the allegations are unspecific as to the Jane Doe defendants’ position in
the supply/distribution chain, or even what kinds of entities they are.
Glencore Ltd. is a wholly owned subsidiary of Glencore based in Connecticut. (Cons. Compl. ¶ 29;
FLP Compl. ¶ 135.)
15
16 Glencore Xstrata plc was created by a merger of Glencore International, PLC and Xstrata in May
2013. (FLP Compl. ¶¶ 131-32; see also Agfa Compl. ¶ 22; Cons. Compl. ¶ 28; Mag Compl. ¶ 21.)
16
physical commodity market in order to understand and make prices.” (Agfa Compl.
¶ 56; Comm. Compl. ¶ 66; Cons. Compl. ¶ 72; FLP Compl. ¶ 379; Mag Compl. ¶ 55
(emphasis in original).)
Although the Class Period is from 2009 forward, Goldman Sachs, JP Morgan,
and Glencore did not purchase LME warehouses until 2010. (See Agfa Compl. ¶55;
FLP Compl. ¶¶ 134, 138, 157; Mag Compl. ¶ 54.)
b)
The Warehouse Defendants
Metro is a global LME warehouse operator. (FLP Compl. ¶ 122.) In
February 2010, it was acquired by subsidiaries of Goldman Sachs, which was a
shareholder in the LME. (FLP Compl. ¶¶ 117, 157; see also Agfa Compl. ¶ 55;
Comm. Compl. ¶ 106; Cons. Compl. ¶ 22; Mag Compl. ¶ 54.) GS Power Holdings
LLC (“GS Power”) is a subsidiary of Goldman Sachs. (Comm. Compl. ¶ 31; Cons.
Compl. ¶ 22; FLP Compl. ¶ 118.) MCEPF Metro I, Inc. (“MCEPF Metro”) is also a
wholly owned subsidiary of Goldman Sachs. (FLP Compl. ¶ 119.) GS Power and
MCEPF Metro together jointly own Mitsi Holdings LLC (“Mitsi”). (Cons. Compl. ¶
22; FLP Compl. ¶ 120.) Mitsi directly owns Metro. (Cons. Compl. ¶ 22; FLP Compl.
¶ 121.) Together, plaintiffs refer to this group of Goldman-related entities as the
“Goldman defendants.” (Comm. Compl. intro.; Cons. Compl. ¶ 23; FLP Compl. ¶
123.)
Defendant Pacorini Metals AG (“PMAG”) has its principal place of business
in Switzerland. (Cons. Compl. ¶ 30; FLP Compl. ¶ 133.) It was acquired by
Glencore in September 2010. (FLP Compl. ¶ 134; see also Agfa Compl. ¶ 22; Mag
Compl. ¶ 21.) PMAG owns and operates a U.S.-based subsidiary, Pacorini Metals
17
USA, LLC (“PMUSA”), which owns and operates LME warehouses that store
aluminum in Baltimore, Chicago, Detroit, Los Angeles, Mobile and New Orleans.
(Agfa Compl. ¶ 23; Comm. Compl. ¶ 36; FLP Compl. ¶ 134; Mag Compl. ¶ 22; see
also Cons. Compl. ¶ 30.)
In February 2010, JP Morgan acquired Henry Bath & Son Limited (“Henry
Bath”), a U.K.-based metals warehousing company that owns and operates 93
metals warehouses and storage facilities around the world. (Comm. Compl. ¶ 33;
FLP Compl. ¶¶ 138-39; see also Agfa Compl. ¶¶ 20-21; Mag Compl. ¶¶ 19-20.)
Henry Bath is the corporate parent of defendant Henry Bath LLC, an international
logistics provider specializing in the storage and shipping of exchange-traded
metals. (Comm. Compl. ¶ 34; FLP Compl. ¶¶ 139-40; see also Agfa Compl. ¶ 21;
Cons. Compl. ¶ 25; Mag Compl. ¶ 20.)
There are 37 LME warehouses in the greater Detroit area, of which 29 are
owned by Metro, which together account for 80% of LME warehouse space in the
greater Detroit area. (FLP Compl. ¶ 159.) There are no allegations that Henry
Bath owns any warehouses in the Detroit area; PMUSA is alleged to own
warehouses there (see, e.g., Agfa Compl. ¶ 23; Comm. Compl. ¶ 36; Mag Compl. ¶
22), but it is not alleged to have had warehouses with any significant increase in
load-out delays or queues during the period from 2009 forward in the Detroit area.
18
2.
Plaintiffs
a)
“First-Level Purchasers”
Plaintiffs Ampal, Inc., Admiral Beverage Corp., Central Aluminum Company
(“Central Aluminum”), Claridge Products and Equipment, Inc., Custom Aluminum
Products, Inc., Extruded Aluminum Corporation, International Extrusions, Inc.
(“International Extrusions”), Talan Products Inc. (“Talan”) and Thule, Inc. are
manufacturers that use aluminum to make, inter alia, aluminum powder,
aluminum extrusions, bottled beverages, or consumer products like bike carriers,
cabinets, and strollers. (FLP Compl. ¶¶ 105-15.) They are based in states as
diverse as Arkansas, Connecticut, Ohio, and Wyoming. (See FLP Compl. ¶¶ 10515.)
These plaintiffs allege that they made “first level direct purchases” of
primary aluminum products pursuant to written contracts in which the purchase
price was based on the Midwest Premium. (FLP Compl. ¶¶ 105-11, 113, 115.) All
but Central Aluminum, International Extrusions, and Talan allege that they may
also have purchased aluminum directly from a Jane Doe defendant during the Class
Period. (See FLP Compl. ¶¶ 105-15.)
The FLPs allege seven causes of action: Count One alleges a violation of
Section 1 of the Sherman Act against the LME, Goldman Sachs, and Jane Doe
defendants; Count Two alleges a violation of Section 2 of the Sherman Act against
the LME, Goldman Sachs, and Jane Doe defendants; Count Three alleges a
violation of Section 1 of the Sherman Act against all defendants; Count Four alleges
19
a violation of Section 2 of the Sherman Act against all defendants; and Counts Five
through Eight are state law equivalent claims under the laws of 34 states and the
District of Columbia. (FLP Compl. ¶¶ 328-431.)
b)
Mag and Agfa
Mag designs, manufactures and sells durable flashlights. (Mag Compl. ¶ 16.)
All mag flashlights are manufactured in the United States using aluminum. (Mag
Compl.) Mag purchased aluminum pursuant to a long-standing supply contract, the
price of which was calculated according to a fixed cost-plus formula that relied in
part on the Midwest Premium. (Mag Compl. ¶ 16(a).)
Mag purchased its aluminum from Norsk Hydro North America, Inc.
(“Hydro”), an aluminum producer and extruder. (Mag Compl. ¶ 16(a).) Hydro was
a member of the LME. (Mag Compl. ¶ 16(b).)17 Thus, until the LME was sold to
Hong Kong Exchanges and Clearing Limited in December 2012, Hydro was a partowner of the LME, along with defendants Goldman Sachs, JP Morgan and Glencore.
(Mag Compl. ¶ 16(b).) Hydro’s corporate parent sits on the LME’s Aluminum
Committee, along with defendants Glencore and JP Morgan. (Mag Compl. ¶ 16 (c).)
Agfa develops, produces, and distributes equipment and supplies such as
lithographic printing plates for the newspaper, commercial printing, and graphics
communication industries. (Agfa Compl. ¶ 17.) It has a production facility in the
United States, and its U.S. headquarters are located in New Jersey. (Mag Compl. ¶
17.) Agfa purchased aluminum from integrated producers such as Alcoa and Hydro
17
Hydro is not a defendant in any of these coordinated and consolidated lawsuits.
20
at all times material to its complaint. (Mag Compl. ¶ 17.) The price Agfa paid for
such aluminum purchases was based upon the Midwest Premium. (Mag Compl. ¶
17.)
Mag and Agfa have filed mirror complaints. (Compare Agfa Compl., with
Mag Compl.) They are coordinated with the other plaintiffs for pre-trial purposes
but have elected not to consolidate into one of the other complaints. Each asserts a
violation of Section 1 of the Sherman Act against all defendants as its First Claim
for Relief (Agfa Compl. ¶¶ 123-29; Mag Compl. ¶¶ 113-19), a violation of California’s
Cartwright Act as its Second Claim for Relief (Agfa Compl. ¶¶ 130-36; Mag Compl.
¶¶ 120-26). Mag also asserts various related claims under California state law.
(Mag Compl. ¶¶ 127-49.)
c)
End Users
The Consumer End User plaintiffs are two residents of California (Daniel
Javorsky and David Kohlenberg), and a pizzeria (Brick Pizzeria LLC), who
indirectly purchased aluminum consumer products for end use (that is, not for
resale.) (Cons. Compl. ¶¶ 17-19.)
The Commercial End User plaintiffs are businesses18 who manufacture
various products for resale and who purchased processed aluminum in connection
therewith. (Comm. Compl. ¶¶ 18-26.) For instance, plaintiffs manufacture boats,
machinery, pre-fabricated housing, patio and swimming pool enclosures, fabricated
18 The Commercial End User plaintiffs include: Big River Outfitters, LLC d/b/a SeaArk Boats
(“SeaArk Boats”); D-Tek Manufacturing; F & F Custom Boats, LLC (“F & F”); Lexington Homes, Inc.;
Master Screens, Inc. d/b/a Tropical Enclosures; Quicksilver Welding Services, Inc.; Seating
Constructors USA, Inc.; Team Ward, Inc. d/b/a War Eagle Boats; and Welk-ko Fabricators, Inc.
(Comm. Compl. ¶¶ 18-26.)
21
home railings and artworks, seating bleachers, cabinets, consoles, and rack panels.
(Comm. Compl.)
The Commercial and Consumer End Users have alleged claims solely for
injunctive relief under federal antitrust laws, and damages under state law.
(Comm. Compl.; Cons. Compl.)
Both the Commercial and Consumer End User plaintiffs have asserted
violations of Section 1 of the Sherman Act against all defendants as their First
Claims for Relief and violations of Section 2 of the Sherman Act as their Second
Claims for Relief. (Comm. Compl. ¶¶ 216-35; Cons. Compl. ¶¶ 195-210.) The
Consumer End User plaintiffs also include a claim for attempted monopolization
(their Third Claim), and violations of state antitrust and unfair competition laws
(their Fourth through Eleventh Claims). (Cons. Compl. ¶¶ 211-326.) The
Commercial End Users also allege violations of state antitrust, consumer protection,
and unfair competition statutes (their Third through Fifth Claims.) (Comm. Compl.
¶¶ 272-309.)
C.
Defendants’ Allegedly Unlawful Conduct
1.
Exploitation of inefficient loading-out.
Plaintiffs allege that between 2009 and March 31, 2012, defendants conspired
to load-out aluminum inefficiently. (Comm. Compl. ¶ 76; FLP Compl. ¶ 31; see
Cons. Compl. ¶ 92) That is, they allege that during the Class Period, the 37 LME
warehouses in the Detroit area used the LME’s 1500 ton per day minimum load-out
requirement as a de facto maximum. (Agfa Compl. ¶ 67; Comm. Compl. ¶¶ 77-78;
22
Cons. Compl. ¶ 92; FLP Compl. ¶¶ 31, 32(f); Mag Compl. ¶ 66.) This increased the
average duration of storage for lots of aluminum stored in LME warehouses,
increasing overall storage costs and leading to an increase in the Midwest Premium.
(See FLP Compl. ¶ 33.)
Between 2009 and March 31, 2012, companies that owned LME warehouses
were required to load-out 1,500 tons of aluminum per city per day. (See Agfa
Compl. ¶¶ 67-68; Cons. Compl. ¶ 59; FLP Compl. ¶¶ 31, 44, 164; Mag Compl. ¶¶ 6667; see also Comm. Compl. ¶ 77.) Because this minimum load-out rule applied on a
per-city basis, if a single warehouse operated more than one warehouse in a city, it
could satisfy its obligation by loading-out from a single warehouse. (Cons. Compl. ¶
62; FLP Compl. ¶ 165.) The 1,500-ton load-out rule did not net out load-ins. (Cons.
Compl. ¶ 88; FLP Compl. ¶ 164; see also Comm. Compl. ¶ 187.) Accordingly, a
warehouse could end up with more aluminum in its inventory at the end of a day
than at the beginning. Plaintiffs allege that a low minimum load-out obligation, the
absence of a per-warehouse load-out requirement, combined with a lack of any rule
requiring the netting out of load-ins, resulted in an unreasonable restraint of trade.
(Cons. Compl. ¶¶ 88-89; FLP Compl. ¶ 165.) There is no allegation as to when the
“minimum load-out,” “per city,” or “no net load-in” rules were adopted or
implemented, by which committee or who constituted the membership of that
committee at the time.19
19
The timing could materially affect the plausibility of plaintiffs’ claims.
23
Starting in the latter part of 2009, the inventories of Metro’s warehouses
began to exhibit an unusual and historically anomalous pattern: warrants would
steadily and substantially accumulate, with spikes of multiple cancellations of
warrants. (FLP Compl. ¶ 161.) This pattern continued to occur after Goldman
Sachs’ subsidiaries acquired Metro in February 2010. (See FLP Compl. ¶ 162.)
According to Agfa’s and Mag’s complaints, such cancellations were intended to
create additional bottlenecks and thereby increase delays of load-outs, and to allow
them to shuttle aluminum between warehouses. (See Agfa Compl. ¶¶ 88-93; Mag
Compl. ¶¶ 87-92.)
During 2010, Metro allegedly began treating the LME’s 1,500-ton-daily
minimum load-out rule as a de facto maximum daily load-out limit. (See FLP
Compl. ¶ 168.) Plaintiffs allege that the LME has “continuously acquiesced,
consented, and otherwise agreed to this ‘maximum’ interpretation of the [rule] since
2010.” (FLP Compl. ¶ 169; see also Comm. Compl. ¶ 78; Cons. Compl. ¶ 139.)
Since load-outs only occur with respect to metal corresponding to cancelled
warrants (see FLP Compl. ¶ 147; see also Agfa Compl. ¶ 45; Comm. Compl. ¶ 69;
Cons. Compl. ¶ 53; Mag Compl. ¶ 44), the first step in queue development is
warrant cancellation. Plaintiffs allege that in order to increase their aluminum
inventories, the warehouse defendants would cancel warrants, transfer the stock to
themselves or their affiliates, and then simply reinstate the warrant at the next
warehouse. (Agfa Compl. ¶ 59; FLP Compl. ¶¶ 382-83; Mag Compl. ¶ 58; see also
Comm. Compl. ¶¶ 88, 187, 193; Cons. Compl. ¶ 4.) Warrant cancellation activity
24
increased once Goldman Sachs, JP Morgan and Glencore entered the aluminum
warehousing industry by way of acquisition. (Agfa Compl. ¶ 60; FLP Compl. ¶ 382;
Mag Compl. ¶ 59.)
Sometime in 2009 or 2010, the delivery of aluminum at LME warehouses
began to be handled by skeleton crews, approval became required for overtime
work, and warehouse employees were no longer permitted to work Saturdays, as
they previously had done. (FLP Compl. ¶ 173.) These factors contributed to the
creation of queues.
Metro also allegedly began loading-out aluminum from one Detroit-area
warehouse only to transport it to another of its warehouses in the same area. (Agfa
Compl. ¶ 91; FLP Compl. ¶ 174; Mag Compl. ¶ 90; see also Comm. Compl. ¶ 81,
Cons. Compl. ¶ 95.) Plaintiffs allege that this “shuttling” of aluminum also
contributed to load-out queues. (See FLP Compl. ¶ 175; see also Agfa Compl. ¶ 92;
Mag Compl. ¶ 91.) These delays have resulted in longer durations of storage and
therefore higher storage fees. (See generally FLP Compl.)
By 2011, load-out queues at the LME warehouses in the Detroit area were
approximately 180 days long. (FLP Compl. ¶ 179.) From January to June 2011,
Metro’s Detroit area warehouses took in approximately 364,000 tons of aluminum
but delivered out only approximately 171,000 tons. (Agfa Compl. ¶ 62; Cons.
Compl. ¶ 134; FLP Compl. ¶ 180; Mag Compl. ¶ 61.)
By 2011, there were public complaints regarding load-out delays in the
Detroit area. (See Agfa Compl. ¶¶ 94-95; Comm. Compl. ¶ 150; Cons. Compl. ¶ 167;
25
FLP Compl. ¶ 182; Mag Compl. ¶¶ 93-94.) In 2011, the chief procurement officer for
the world’s largest aluminum can manufacturer estimated that the Detroit delays
caused a $20 to $40 increase in the U.S. benchmark price per ton. (Comm. Compl.
¶154; Cons. Compl. ¶ 133; FLP Compl. ¶¶ 184-86.) In 2011, Coca-Cola Co. lodged a
complaint with the LME. (Agfa Compl. ¶ 95; Comm. Compl. ¶ 153; Cons. Compl. ¶
136; FLP Compl. ¶ 190; Mag Compl. ¶ 94.) In response to these complaints, the
LME hired consultancy Europe Economics to study the queues and delays in
Detroit-area warehouse load-outs. (Agfa Compl. ¶ 76; Comm. Compl. ¶ 155; Cons.
Compl. ¶ 116; FLP Compl. ¶ 193; Mag Compl. ¶ 75.) That firm recommended that
the minimum load-out rule be changed to scale with inventories. (FLP Compl. ¶
196; see also Agfa Compl. ¶ 80; Cons. Compl. ¶ 116; Mag Compl. ¶ 79.)
Plaintiffs also allege that Goldman or Metro International Trade Services,
L.L.C. (“Metro”; together, “Goldman/Metro”)20 increased its inventories by offering
incentive payments to aluminum producers. (Comm. Compl. ¶¶ 61, 140; Cons.
Compl. ¶ 5(g); FLP Compl. ¶¶ 212-13; see also Agfa Compl. ¶¶ 64-65; Mag Compl.
¶¶ 63-64.) According to plaintiffs, this diverted aluminum from productive uses to
long-term storage. (FLP Compl. ¶ 213; see Agfa Comp. ¶ 59; Comm. Compl. ¶ 11;
Mag Compl. ¶ 58; see also Cons. Compl. ¶ 101.) Goldman/Metro offered to pay as
much as $250 or more per ton in such up-front “incentive payments.” (Comm.
Compl. ¶ 193; Cons. Compl. ¶ 5(g); FLP Compl. ¶ 214.) According to plaintiffs,
20 Plaintiffs’ allegations with regard to incentive payments are cast in terms of “Goldman.” However,
the other allegations of the complaints only support Metro as the operational arm of the Goldmanaffiliated warehousing operations. There are also no allegations in any complaint regarding how,
who, when, or why any “Goldman” personnel would, could, or did communicate with Metro personnel
with respect to warehouse operations.
26
Goldman’s incentive payments created a positive feedback loop in which the more
aluminum it could divert into its warehouses and the more inefficient it could be in
loading-out, the more it earned and therefore the more it could afford to pay in
incentive payments. (Cons. Compl. ¶ 101; FLP Compl. ¶ 216.)
Plaintiffs allege that defendants had no incentive to decrease queues during
the period 2012-13 because they were in the process of trying to sell the LME, and
therefore it was in their mutual self-interest to maintain high storage revenues.
(Cons. Compl. ¶ 5(h); FLP Compl. ¶ 197.) Defendants allegedly agreed not to
implement the recommendations of “their own paid consultants’ proposed solution
to the problem.” (FLP Compl. ¶ 198; see also Agfa Compl. ¶ 82; Comm. Compl. ¶
155; Cons. Compl. ¶ 117; Mag Compl. ¶ 81.)21
In total, LME warehouses’ inventories of aluminum rose from 1290 tonnes in
2008, to 2200 tonnes in 2009, to 2230 tonnes in 2010, to 2360 tonnes in 2011,
ultimately decreasing to 2300 in 2012. (Agfa Compl. ¶ 51; Mag Compl. ¶ 50.)
Effective April 1, 2012, the LME adopted a rule agreeing to change the
minimum load-out requirement for LME warehouses in the greater Detroit area to
3000 tons per day. (Comm. Compl. ¶ 88; Cons. Compl. ¶ 60; FLP Compl. ¶ 199; see
also Agfa Compl. ¶ 67; Mag Comp. ¶ 66.) A company named Rusal objected to and
21 Notably, the FLPs do not allege how the LME’s retention of Europe Economics was transformed
into the “defendants’” paid consultant, rather than merely that of the LME specifically. (Compare
FLP Compl. ¶ 193, with FLP Compl. ¶ 198.) Presumably this allegation is based on the assumption
that by virtue of their combined minority ownership interest in the LME’s parent, defendants could
both control the consultant such that it was “theirs” and exert sufficient influence to determine
whether its recommendations would or would not be adopted. However, such an assumption is
without support in any allegation.
27
challenged this change; a U.K. court has stayed its implementation. R v. London
Metal Exch. ex parte United Co. Rusal PLC, [2014] EWHC (Admin) 890 (Eng.).22
In November 2012, the European Union announced that it was investigating
the LME’s warehousing arrangements. (Comm. Compl ¶ 159; Cons. Compl. ¶ 127;
FLP Compl. ¶ 240.) In 2013, the U.S. Senate Banking, Housing and Urban Affairs
Committee began an investigation into the warehousing queues. (Comm. Compl. ¶
163; FLP Compl. ¶ 251; see also Cons. Compl. ¶ 114.)
In August 2013, the U.S. Commodity Futures Trading Commission sent
subpoenas to Goldman Sachs, JP Morgan, Glencore, PMUSA, and “perhaps others”
as part of an inquiry into metals prices. (FLP Compl. ¶ 271; see also Agfa Compl. ¶
99; Comm. Compl. ¶ 161; Cons. Compl. ¶ 129; Mag Compl. ¶ 98.) The Department
of Justice also launched a preliminary investigation that same month. (Cons.
Compl. ¶ 129; FLP Compl. ¶ 272; see also Agfa Compl. ¶¶ 2, 99; Comm. Compl. ¶
162; Mag. Compl. ¶¶ 2, 98.)
The amount of stored aluminum inventory in the Detroit-area LME
warehouses continued to increase between 2012 and 2014. (FLP Compl. ¶ 206.) By
2013, queues in the Detroit-area LME warehouses had grown to 469 calendar days.
(Comm. Compl. ¶ 90; Cons. Compl. ¶ 145; FLP Compl. ¶ 248.) As the economic
recovery progressed, however, aluminum supplies in non-Detroit-area warehouses
22 The FLPs also allege the LME agreed with Goldman Sachs to increase storage rates. (FLP Compl.
¶ 203.) The LME’s public documents indicate that storage rates are set by the warehouses
themselves and reported to the LME. See London Metal Exch., Terms and Conditions Applicable to
All LME Listed Warehouse Companies § 5.1.4 (2013), available at http://www.lme.com/
~/media/Files/Warehousing/Warehouse%20consultation/Warehousing%20Agreement.pdf. While on
these 12(b)(6) motions the Court does not find facts but construes allegations in plaintiffs’ favor,
allegations directly contradicted by the public record impact plausibility.
28
declined substantially. (Comm. Compl. ¶ 98; Cons. Compl. ¶ 5(d); FLP Compl. ¶
207.)
2.
Monopoly allegations.23
Plaintiffs allege that Goldman has a monopoly over “LME-approved
warehousing space for deliveries on LME aluminum and other metals contracts in
LME Detroit Warehousing.” (Comm. Compl. ¶ 191; FLP Compl. ¶ 287.) During the
Class Period, Goldman is alleged to have purchased warehouses with more than
80% of the storage space in the Detroit area.24 (Comm. Compl. ¶ 191; Cons. Compl.
¶ 85; FLP Compl. ¶ 289.) Goldman is alleged to have stores of over 50% of the
aluminum stored in warehouses located in those parts of the United States that
transact based on the Midwest Premium or Platts MW Premium. (Comm. Compl. ¶
191; Cons. Compl. ¶ 158; FLP Compl. ¶ 290.) Together, Goldman and Glencore are
alleged to have monopoly power to set prices, to set storage rates, and to control
output in their LME warehouses. (FLP Compl. ¶ 291.)
The FLPs and Commercial End Users allege that LME warehousing in the
greater Detroit area is an essential facility, because access to aluminum stored in
warehouses in that area is crucial for plaintiffs and class members to be able to
successfully conduct business in the United States. (FLP Compl. ¶ 303; see also
Comm. Compl. ¶ 12.)
23
Mag and Agfa do not allege a monopoly claim.
24 The Class Period is alleged to commence in 2009, but affiliates of Goldman Sachs are not alleged to
have purchased Metro International and its warehouses until February 2010. It is therefore unclear
whether the allegations at paragraph 289 in the FLPs’ complaint refer to LME warehouses in the
greater Detroit area or other warehouses that Goldman acquired, as to which there are no specific
allegations in the complaint.
29
Those plaintiffs who allege a “relevant market” (or several alternative
“relevant markets”) for their antitrust claims25 define them as follows:
(1) The market for providing exchange-traded aluminum forward or futures
contracts, including to LME warehouses in the United States (Comm.
Compl. ¶ 197(b); FLP Compl. ¶ 306);
(2) The market for providing exchange-traded aluminum forward or futures
contracts in the United States, including the approval and regulation of
warehouses to store the exchange-traded aluminum (Cons. Compl. ¶ 158);
(3) The market for warehouse storage of aluminum in the United States in
LME warehouses (FLP Compl. ¶ 306; see Comm. Compl. ¶ 197(a));
(4) The market for warehouse storage of aluminum in areas in which
purchase and sale contracts for aluminum are based on the Midwest
Premium (FLP Compl. ¶ 306);
(5) The market for warehouse storage of aluminum in the United States and
other areas in which aluminum is purchased and sold based on the
Midwest Premium (Comm. Compl. ¶ 198);
(6) The market for warehousing LME aluminum in the greater Detroit area
(FLP Compl. ¶ 307);
(7) The market for warehousing aluminum in the greater Detroit area (FLP
Compl. ¶ 307);
25
Agfa and Mag do not explicitly allege a relevant market. (See Agfa Compl.; Mag Compl.)
30
(8) The market for warehousing aluminum in the United States (see Comm.
Compl. ¶ 198(b));
(9) The market for warehousing aluminum in the contiguous area of
Michigan, Ohio, Indiana, Illinois, Wisconsin, Minnesota, and other areas
in which aluminum is purchased or sold based on the Midwest Premium
(FLP Compl. ¶ 307);
(10)
The market in the Detroit area in which aluminum is bought and sold
based on the Midwest Premium for storage in or delivery from warehouses
(Cons. Compl. ¶ 158);
(11)
The market in the United States in which aluminum is bought and
sold based on the Midwest Premium for storage in or delivery from
warehouses (Cons. Compl. ¶ 158);
(12)
The market in the United States in which aluminum is purchased by
manufacturers of aluminum consumer products at prices based on, related
to, or influenced by the Midwest Premium (Cons. Compl. ¶ 158);
(13)
The market in the United States for the sale of aluminum consumer
products to consumers for end-use and not for resale and all relevant submarkets (Cons. Compl. ¶ 158);
(14)
The market for aluminum in the United States. (Comm. Compl. ¶
198(a).)
31
All told, individually or collectively, plaintiffs allege fourteen potential
markets. None are accompanied by allegations regarding product
interchangeability, elasticities, or geographic boundaries.
II.
LEGAL STANDARD ON MOTION TO DISMISS
To survive a Rule 12(b)(6) motion to dismiss, the factual allegations in a
complaint must raise plaintiffs’ right to relief above the speculative level. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007). In other words, a complaint must
allege enough facts to “state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678. In applying that standard, a court accepts as true
all well-pleaded factual allegations, but does not credit “mere conclusory
statements” or “threadbare recitals of the elements of a cause of action.” Id.
Similarly, a court need not accept “legal conclusions couched as factual allegations.”
Starr v. Sony BMG Music Entm’t, 592 F.3d 314, 321 (2d Cir. 2010) (quoting Port
Dock, 507 F.3d at 121).
If the Court can infer no more than “the mere possibility of misconduct” from
the factual averments—that is, if the well-pleaded allegations of the complaint have
not “nudged [plaintiffs’] claims . . . across the line from conceivable to plausible”—
dismissal is appropriate. Iqbal, 556 U.S. at 679-80 (quoting Twombly, 550 U.S. at
570).
32
The “plausibility” requirement should not, however, be misunderstood as a
“probability” standard. Twombly, 550 U.S. at 556; Anderson News, L.L.C. v. Am.
Media, Inc., 680 F.3d 162, 184 (2d Cir. 2012). “Because plausibility is a standard
lower than probability, a given set of actions may well be subject to diverging
interpretations, each of which is plausible.” Anderson News, 680 F.3d at 184. On a
Rule 12(b)(6) motion, the Court may not choose between two plausible inferences
that may both be drawn from the factual allegations. Id. at 185. This is so even if a
court finds one of the two versions more plausible. Id.
III.
ANTITRUST STANDING26
In an antitrust case, a plaintiff must have constitutional standing under
Article III, as well as antitrust standing. See Associated Gen. Contractors of Cal.,
Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 535 n.31 (1983); see also Port
Dock, 507 F.3d at 121. A plaintiff has Article III standing only if they have suffered
an injury in fact. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (“The
irreducible constitutional minimum of standing [requires] . . . injury in fact—an
invasion of a legally protected interest which is (a) concrete and particularized, . . .
and (b) actual or imminent, not conjectural or hypothetical . . . .” (citations and
quotations omitted)). Plaintiffs’ Article III standing is not in dispute. Defendants
vigorously contest that plaintiffs have or could plead antitrust standing.
26 Neither § 1 nor § 2 of the Sherman Act provides for a private right of action. That is accomplished
by § 4 and § 16 of the Clayton Act. Section 4 provides for a treble damages action and states that
“any person who shall be injured in his business or property by reason of anything forbidden in the
antitrust laws” may sue for treble damages. 15 U.S.C. § 15. Section 16 provides for an action for
injunctive relief and states that “[a]ny person, firm, corporation, or association shall be entitled to
sue for and have injunctive relief . . . against threatened loss or damage by a violation of the
antitrust laws . . . .” 15 U.S.C. § 26.
33
Antitrust standing is “a threshold, pleading-stage inquiry and when a
complaint by its terms fails to establish this requirement [the court] must dismiss it
as a matter of law.” Gatt Commc’ns Inc. v. PMC Assocs. L.L.C., 711 F.3d 68, 75 (2d
Cir. 2013) (quoting NicSand, Inc. v. 3M Co., 507 F.3d 442, 450 (6th Cir. 2007) (en
banc)); see also Paycom Billing Servs., Inc. v. MasterCard Int’l, Inc., 467 F.3d 283,
290-95 (2d Cir. 2006) (dismissing a complaint under Rule 12(b)(6) for lack of
antitrust standing).
Establishing antitrust standing requires more than alleging an injury
causally related to unlawful conduct. A plaintiff must allege plausible facts that he
suffered “injury of the type the antitrust laws were intended to prevent and that
flows from that which makes defendants' acts unlawful.” Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Thus, although causally related
to an antitrust violation, injury does not constitute “antitrust injury” unless it is
attributable to an anticompetitive aspect of the challenged conduct. Atl. Richfield
Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990). This requirement is derived
from the principle that the antitrust laws were enacted for “the protection of
competition, not competitors.” Brown Shoe Co. v. United States, 370 U.S. 294, 319
(1962); see also Gatt, 711 F.3d at 75 (“Absent such boundaries, the potent private
enforcement tool that is an action for treble damages could be invoked without
service to—and potentially in disservice of—the purpose of the antitrust laws: to
protect competition.”).
34
The Supreme Court decided two cases in back-to-back terms addressing
antitrust standing in the context of private damages actions: Blue Shield of Virginia
v. McCready, 457 U.S. 465 (1982), and Associated General Contractors of California,
Inc. v. California State Council of Carpenters (“AGC”), 459 U.S. 519 (1983).
McCready was a 5-4 decision in which Chief Justice Burger and Justices
Rehnquist, O’Connor, and Stevens dissented. There, the Court held that while
plaintiff was not a competitor of the alleged conspirators, “the injury she suffered
was inextricably intertwined with the injury the conspirators sought to inflict.” 457
U.S. at 484. In that case, plaintiff McCready alleged that her health insurer Blue
Shield of Virginia and an organization of psychiatrists conspired to exclude
psychologists from eligibility for compensation under Blue Shield’s insurance plans.
Id. at 469-70. McCready sought reimbursement from Blue Shield for treatment by
a psychologist. Id. at 467-69. However, Blue Shield only allowed her and other
subscribers to choose between “visiting a psychologist and forfeiting reimbursement,
or receiving reimbursement by forgoing treatment of a provider of their choice.” Id.
at 483. The Court found that McCready’s injury “flow[ed] from that which makes
defendants’ acts unlawful” under the antitrust laws, and accordingly there was no
persuasive rationale to deny McCready redress. Id. at 484-85.
In AGC, an 8 to 1 decision in which Justice Marshall was the lone dissenter,
the Court set forth a framework for defining the boundaries of antitrust standing.
There, a union sought redress on behalf of its membership for alleged antitrust
violations. 459 U.S. at 520. In tension with the broad language of McCready, the
35
Court found that the union lacked antitrust standing. Id. at 545-36. In doing so,
the Court identified several factors court should consider in determining whether a
plaintiff has antitrust standing: (1) the causal connection between the violation and
the harm; (2) the presence of an improper motive; (3) the type of injury and whether
it was one Congress sought to address; (4) the directness of the injury, (5) the
speculative nature of the damages; and (6) the risk of duplicative recovery or
complex damage apportionment. Id. at 537-44. Applying these factors, the Court
concluded: (1) the causal chain consisted of several “somewhat vaguely defined”
links; (2) motive was not a significant issue in the case; (3) the type of injury was
not one Congress sought to address because the union was “neither a consumer nor
a competitor in the market in which trade was restrained”; (4) the union’s alleged
injury was too indirect; (4)-(5) the injury was speculative because the effects of the
conspiracy were indirect and could have been caused by independent factors; and (6)
there was an alternative class of plaintiffs better situated to pursue the claims,
which created a risk of duplicative damages. Id. at 539-45 & n.37.
The Second Circuit has “distilled” the AGC factors “into two imperatives”:
first, that a plaintiff plausibly allege that he suffered antitrust injury, and, second,
that he plausibly allege facts that support his suitability as a plaintiff to pursue the
alleged antitrust violation—and that he would therefore be an “efficient enforcer” of
the antitrust laws. Gatt, 711 F.3d at 76; see also Port Dock, 507 F.3d at 121; Daniel
v. Am. Bd. of Emergency Med., 428 F.3d 408, 443 (2d Cir. 2005).
36
The Second Circuit employs a three-step process for determining whether a
plaintiff has plausibly alleged antitrust injury. Gatt, 711 F.3d at 76. The plaintiff
must first identify the practice complained of and the reasons why such practice is
or might be anticompetitive. Id. Next, a court must identify the actual injury that
plaintiff alleges and inquire how plaintiff is in a worse position as a consequence of
the conduct. Id. Finally, a court must compare the “anticompetitive effect of the
practice at issue” to the “actual injury the plaintiff alleges.” Id. (quoting Port Dock,
507 F.3d at 122). This multi-step inquiry assures that a causal link is not the sole
basis for determining there has been an “antitrust injury.”
Whether a plaintiff would be an “efficient enforcer” depends on a balancing of
the following factors:
(1) the directness or indirectness of the asserted injury;
(2) the existence of an identifiable class of persons whose
self-interest would normally motivate them to vindicate
the public interest in antitrust enforcement; (3) the
speculativeness of the alleged injury; and (4) the difficulty
of identifying damages and apportioning them among
direct and indirect victims so as to avoid duplicative
recoveries.
Gatt, 711 F.3d at 76 (quoting Paycom, 467 F.3d at 290-91); see also Port Dock, 507
F.3d at 121; Daniel, 428 F.3d at 443.
Neither AGC nor McCready addressed the extent to which their holdings
apply in actions where plaintiffs do not seek damages, but rather only seek
injunctive relief. Two of the actions here, brought by the Consumer End Users and
Commercial End Users, seek only injunctive relief with regard to their federal
37
antitrust claims.27 However, in neither AGC nor McCready did the Court indicate
that its holding or rationale is limited to actions for monetary damages.
The AGC factors relating to complex, speculative and/or duplicative damages
beg the question of whether and how that analysis changes in the context of actions
in which only injunctive relief is sought. However, the principles behind those
factors drive this Court’s analysis. In this regard, issues with complex and
speculative damages concern the fact and nature of harm (that is, damage) as much
as a calculation of dollars and cents. Is determining the fact of damage complex?
Does remedying plaintiff’s injury through injunctive relief present complex issues?
Similarly, to assess the potential for duplicative recovery, the Court must
reasonably ask not only whether there is another plaintiff who will recover a
quantum that would account for monetary damage, but also whether the relief one
plaintiff seeks more generally (such as injunctive relief), is being adequately
pursued by another, better-situated party. Thus, the AGC factors are reasonably
applicable to actions in which only injunctive relief is sought. Finally, in all cases
the court is cautioned to be mindful the manageability of litigation. That is,
allowing actions to proceed in which plaintiffs seek overlapping relief and in which
their presence provides no additional benefit may well add to manageability issues.
Cf. Sacramento Valley, Chapter of the Nat’l Elec. Contractors Ass’n v. Int’l Bhd. of
Elec. Workers, 888 F.2d 604, 608-09 (9th Cir. 1989).
27
These plaintiffs seek damages for state law competition and other claims.
38
A.
Role in the Market
In most antitrust cases, the applicability of the AGC factors is relatively
straightforward because private plaintiffs are typically either competitors or
consumers in the relevant market. As McCready demonstrates, however, this is not
invariably or even necessarily the case. 457 U.S. at 483-84 (plaintiff was customer,
not competitor, of defendant); see also Crimpers, 724 F.2d at 294 (plaintiff was
trade show organizer, not participant in market for cable programming); Province v.
Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir. 1986) (plaintiffs were
former employees, not competitors, of defendants). In the absence of a market role
as a competitor or consumer, a plaintiff may also show that his injury is
“inextricably intertwined” with the injury inflicted on the relevant market.
McCready, 457 U.S. at 484; Province, 787 F.2d at 1052. “To be inextricably
intertwined with the injury to competition, the plaintiffs must have been
‘manipulated or utilized by [d]efendant as a fulcrum, conduit or market force to
injure competitors or participants in the relevant product and geographical
market.’” Province, 787 F.2d at 1052 (quoting Southaven Land Co. v. Malone &
Hyde, Inc., 715 F.2d 1079, 1086 (6th Cir. 1983)) (finding plaintiffs’ injury was not
inextricably intertwined because their injury was “a result of—rather than a means
or the cause of—the harm”). In all cases in which the court found standing on this
basis, either defendants alleged a relevant market, or neither party raised the issue.
This Court is unaware of any case in which plaintiffs were neither competitors nor
39
consumers and failed to allege a defined market yet were found to have antitrust
standing.
The parties here have focused on the facts and language of certain cases with
regard to the antitrust standing analysis. In particular and in addition to those
decisions already discussed, the parties have extensively briefed the following
decisions: Crimpers Promotions Inc. v. Home Box Office, Inc., 724 F.2d 290 (2d Cir.
1983) (Friendly, J.); Reading Industries, Inc. v. Kennecott Copper Corp., 631 F.2d
10 (2d Cir. 1980); Ice Cream Liquidation, Inc. v. Land O’Lakes, Inc., 253 F. Supp. 2d
262 (D. Conn. 2003); and Loeb Industries, Inc. v. Sumitomo Corp.
In Crimpers, which was decided shortly after the Supreme Court handed
down its decision in AGC, the Second Circuit held that a company organized to hold
a television trade show had antitrust standing to assert a claim under § 4 of the
Clayton Act against HBO and Showtime. These entities were alleged to have
orchestrated a successful boycott of the trade show to further cement their
dominance in the market for cable programming. 724 F.2d at 290. Plaintiff
Crimpers was a company organized to hold a television trade show in Las Vegas
that sought to bring together cable television programmers; Crimpers was not itself
a cable programmer, nor did it otherwise participate directly in the market for cable
programming. See id. at 291. Relying on McCready, the Court determined that
plaintiff had antitrust standing because the defendants’ scheme would not have
been profitable had it not directly used plaintiff, and thus plaintiff’s injury was
“inextricably intertwined with the injury the defendants sough to inflict on
40
producers and television stations in the cable television programming market.” Id.
at 294-95. Then, after assessing each of the AGC factors, the Court concluded that
plaintiffs had adequately established antitrust standing. See id. at 296-97.
Finally, Loeb represents the Seventh Circuit’s interpretation of where to
draw the lines set forth in AGC and McCready. There, copper purchasers at
different levels of the supply/distribution chain sued Sumitomo, alleging it had
conspired to fix the price of copper futures at artificially high levels on the LME and
Comex exchanges. 306 F.3d at 474. Copper prices were directly linked to the LME
and Comex prices for copper futures, and various forms of physical copper were
quoted using formulas relating to these prices. Id. at 476. The Seventh Circuit
found that copper scrap dealers (“Scrap Dealers”) lacked antitrust standing but that
others (namely, Viacom, Inc. and Emerson Electric Co.) who turn copper cathode
into wire for resale, were not too remote from the allegedly anticompetitive conduct,
and thus had antitrust standing. Id. at 475, 484-86, 492.
According to the Seventh Circuit, even if the Scrap Dealers could establish
that their injuries flowed directly from defendants’ alleged market manipulations,
that injury was nevertheless indirect. Id. at 484. The Scrap Dealers were several
layers down the supply/distribution chain—after an integrated producer who
refined the copper and a manufacturer who turned the refined copper into a
product, possibly generating scrap in the process. Id. at 484-85. The Court noted
that under AGC, the directness inquiry focuses on the presence of more immediate
victims of the antitrust violation who are better positioned to maintain an action.
41
Id. at 484. The Court identified several other groups of entities in such a better
position, including traders who had already filed and settled claims with
defendants. Id. at 484-85. In addition, the Court found that the Scrap Dealers’
damages were speculative. Id. at 485. Finally, the Court noted that the Scrap
Dealers’ claim presented a real risk of duplicative recovery and complex damage
apportionment, as physical copper could be sold and resold many times. Id. at 48586. The Court resolved this issue by restricting the right to recover to those more
directly affected by defendants’ actions. Id.
In contrast to the Scrap Dealers, however, the Court found that Viacom,
which purchased copper directly based on inflated Comex prices, was directly
injured. Id. at 489. Despite the defendants’ argument to the contrary, the Court
found that Viacom’s injury “d[id] not depend on the speculative actions of
innumerable market decision makers,” but “flowed instead directly from the
contracts between Viacom and its suppliers.” Id. at 488-489. The Court also found
that damage apportionments at this level of the supply/distribution chain could be
easily resolved with basic market and purchasing data. See Id. at 490-91.
In Reading, the Second Circuit held that a copper scrap refiner did not have
antitrust standing to assert a claim of a price-fixing conspiracy because plaintiff’s
theory of injury “depend[ed] upon a complicated series of market interactions”
between the refined copper market, in which the defendants acted, and the copper
scrap market, where plaintiff was allegedly injured. 631 F.2d at 13. Plaintiff’s
“attenuated economic causality” and the possibility that other market variables
42
intervened to affect the prices plaintiff paid for copper scrap weighed against
finding that plaintiff had antitrust standing. See id. at 14.
In Ice Cream, the District of Connecticut concluded that an ice cream
company had antitrust standing to sue dairy cooperatives that allegedly conspired
to fix the prices of milk, cream, and butter. 254 F. Supp. 2d at 266-67. There, the
allegedly anticompetitive conduct took place in the market for butter on the Chicago
Mercantile Exchange (“CME”), not the physical markets for butter, cream, or milk.
Id. at 268-69. However, because plaintiffs alleged that the prices in the physical
market were closely tied to those in the CME butter market, the link between the
conduct and plaintiffs’ alleged injuries was sufficiently direct. See id. at 273-74. Of
note, defendants in Ice Cream both traded in the CME butter market and directly
sold dairy products to defendants in the physical market. See id. at 268-70.
Taken together, these cases demonstrate that the determination of whether a
plaintiff has antitrust standing is based on a careful examination of the specific
factual allegations in the complaints at issue. The court must first determine the
type of injury alleged, and then examine plaintiff’s proximity and relationship to
that injury.
B.
Discussion of Plaintiffs’ Antitrust Standing
There are 6 coordinated cases with 13 motions to dismiss pending before this
Court. Defendants assert that none of the plaintiff groups could possibly allege
sufficient plausible facts to support antitrust standing. This Court has considered
the sufficiency of each complaint individually, according to its allegations.
43
As set forth above, the Court’s initial evaluation of standing relates to
whether plaintiffs have adequately alleged antitrust injury. Here, plaintiffs
uniformly allege that by paying a price for aluminum which incorporated an
inflated Midwest Premium, they have alleged classic antitrust injury. This
argument has an obvious, immediate appeal: coordinated action that inflates price
is a classic form of antitrust injury. Of course, this most frequently occurs in the
context of direct competitors or consumers of the defendants, and therefore whose
participation in a relevant market is plain. Not so here. Here, plaintiffs proceed
along the “inextricably intertwined” theory—a la McCready, Crimpers and the other
cases discussed above. That framework necessarily requires understanding the
market in which the actual antitrust injury is alleged to have occurred and to
whom; this, of course, requires some clear reference to a product market and the
competitors within that market. This is not a requirement for the specificity of
market allegations necessary for a § 2 claim (described below), but rather is a
recognition that one cannot determine that which constitutes “antitrust” injury in
the absence of knowing the type of competitive process alleged to have been
interfered with. This flows from the fundamental principle that the antitrust laws
were designed to protect “competition, not competitors.” Brown Shoe, 370 U.S. at
319.
By failing clearly or adequately allege a market in which antitrust injury is
experienced and by whom, plaintiffs fail to support their own antitrust injury. That
they were harmed by paying higher prices they have alleged—and they have done
44
so clearly. But how that impacted competition and in which market is not. None of
the complaints clearly refers to a market where antitrust injury is directly
experienced or how. To support a McCready- or Crimpers-type analysis, plaintiffs
must allege where the antitrust injury is experienced, the impact it has on the
competitive process, to whom, and how their injury is “inextricably intertwined.”
This threshold issue is, perhaps, a problem of choosing one among several
horses (i.e., markets) to ride. Plaintiffs may, of course, choose to ride a number of
horses—but they must specify precisely what each horse looks like and what is
involved in riding each. Without such clarity, this Court cannot determine whether
plaintiffs’ injury is “inextricably intertwined” with anticompetitive injury.
For this analysis the Court asks, were plaintiffs manipulated or utilized by
the defendants as a “fulcrum, conduit or market force” to injure competitors or
participants in the relevant product or geographic market? Province, 787 F.2d at
1052 (quotation omitted). Are plaintiffs here situated as in McCready, where
plaintiff was a consumer of services from an individual psychologist that defendants
sought to exclude? See 457 U.S. at 368. Or as in Crimpers, where plaintiff was a
trade show that sought to bring together producers and television stations in the
cable television programming market? 724 F.2d at 294-95. Here, the markets are
unclear and frankly confused: if the relevant market is LME warehouse services in
the Detroit area, was the anticompetitive conduct aimed at causing storage fees to
rise? Who was targeted and who therefore suffered the initial injury—the warrant
holders or parties to aluminum futures contracts? Or, is the relevant market the
45
LME futures and forward contracts market? If so, was the anticompetitive conduct
to raise the price of aluminum to the detriment of other traders in those
instruments? In order for plaintiffs to proceed on an “inextricably intertwined”
theory, they must allege with clarity what the relevant market is, what precise
anticompetitive conduct occurred in that market, and how their injury was
inextricably intertwined with that injury. In the absence of such allegations,
plaintiffs have failed to adequately allege that they have antitrust standing.
Plaintiffs’ allegations regarding the market structure in which defendants’
challenged conduct occurred highlights the particular complexities of the antitrust
injury question here. According to plaintiffs, the vast majority of aluminum trading
activity on the LME takes place among banks, hedge funds and traders, rather than
users of aluminum. A contango—which exists when the forward price of aluminum
is higher than the current price—provides these traders with an arbitrage
opportunity. Such arbitrage definitionally requires traders to retain warrants for
some period of time. Because futures trading is a zero-sum game (as each “dollar
gained by a long trader is lost by a short trader on the other side of the contract,” de
Atucha v. Commodity Exch., Inc., 608 F.Supp. 510, 516 (S.D.N.Y. 1985)), defendants
could not have completed their scheme unless another trader purchased an
offsetting position. As cast in the complaints, this scheme therefore required
traders on different sides of the futures contract making opposing bets, with one
losing. This scheme does not directly require any participation by plaintiffs.28 But
This case is unlike others in which plaintiffs who are neither competitors nor consumers have been
found to have standing. In each of those cases, plaintiffs were necessary to the completion of the
28
46
it may be that plaintiffs are indirectly necessary. For instance, it may be that the
price of aluminum futures contracts is necessarily impacted by the actual expected
usage of aluminum by manufacturers. That is, without usage of aluminum and
therefore without purchases of aluminum at some point along the chain, the traders
would not have a market opportunity. The factual allegations of the current
complaints are, however, insufficient to support such a view.
For these reasons, plaintiffs have failed adequately to support allegations of
antitrust injury.
A. Are Plaintiffs Efficient Enforcers?
Even if plaintiffs can adequately allege antitrust injury, as currently pled
their claims nonetheless fail: they have a separate obligation to support their role as
efficient enforcers of the antitrust laws with specific allegations. Gatt, 711 F.3d at
76; Port Dock, 507 F.3d at 121. They have failed to do so. Each complaint contains
its own set of allegations regarding the role of the plaintiffs therein in the
supply/distribution chain. The Court has reviewed each of the complaints against
their respective and individualized allegations. Nevertheless, the complaints share
certain deficiencies.
All allegations refer to roles which are more than one level down in the
supply/distribution chain.29 None of the complaints alleges that plaintiffs in fact
scheme. See, e.g., McCready, 457 U.S. at 479 (only if insureds such as McCready ceased using
psychologists would the scheme achieve its purpose); Ice Cream, 253 F. Supp. 2d at 269-70 (plaintiffs
needed to buy milk and cream from defendants at inflated prices for scheme to work effectively).
29 Mag and Agfa allege that they purchased some aluminum directly from producers (Alcoa and
Hyrdo); but it is unclear to what extent that would have incorporated the Midwest Premium, and the
extent to which those purchases were in the U.S. or elsewhere, or whether that matters.
47
themselves purchase any aluminum directly out of the LME-approved warehouses.
Instead, all plaintiffs are one or more levels down the supply/distribution chain
from such purchases.30 The Commercial End Users’ and Consumer End Users’
aluminum purchases are the furthest down the chain and definitionally indirect.
As they allege, their purchases incorporating the inflated Midwest Premium
occurred several layers down the supply/distribution chain. For instance, the
Commercial End Users include several boat manufacturers, such as SeaArk Boats
and F & F, who do not allege that they purchased the aluminum directly from a
warehouse, or even directly from an entity that did. Indeed, they characterize
themselves as “End Users.” Similarly, the Consumer End Users—including
individual consumers and a pizzeria—may simply have bought canned soft drinks
or other consumer products incorporating the inflated Midwest Premium. Well
before any of these purchases, the aluminum had been purchased, delivered from a
warehouse to some initial buyer, and then another buyer and so on, down the
supply/distribution chain, with each step potentially involving additional
fabrication or services.
The injury suffered by these plaintiffs is therefore indirect. Their injury is
paying a price for a product partially made from aluminum that partially
incorporates the Midwest Premium. While these plaintiffs are not seeking
monetary damages for their antitrust claims, the question of whether they are
30 Of the FLP plaintiffs, only two, International Extrusions and Talan, specifically assert that they in
fact purchased and took delivery of aluminum that was formerly warranted in an LME warehouse.
(See FLP Compl. ¶¶ 105-15.) But it is unclear as to whether this aluminum was warranted in LME
warehouses in Detroit or elsewhere, and these plaintiffs do not allege that they purchased it directly
from an LME warehouse.
48
efficient enforcers as to those claims remains. In this regard, the type of relief
requested is only one factor; the questions of how to assess their injury and how to
determine causation are others. Given their own allegations regarding their
position in the supply/distribution chain, isolating their particular damage from
other potential causal factors would present a highly complex task. For instance,
did labor costs, transportation costs or bottling costs lead to an increase in prices?
These issues do not simply disappear because these plaintiffs are not seeking a
monetary recovery.
In terms of injunctive relief (and putting to one side for the moment the
question of the adequacy of allegations for obtaining injunctive relief), all plaintiffs
would presumably seek similar injunctive terms. But upstream plaintiffs would be
more closely positioned to industry dynamics and therefore arrive at relief that
might better address any unlawful conduct, and in the process, prevent harm from
flowing downstream. Thus, the Commercial End Users and Consumer End Users
are pursuing duplicative relief, even if in the form of an injunction. Their roles as
plaintiffs thus compounds manageability issues without providing any clear benefit.
There are numerous other plaintiffs further up the supply/distribution chain
(as demonstrated in the remaining complaints) who would be better positioned to
enforce the antitrust laws. As a result, Supreme Court precedent dictates that
these plaintiffs do not have antitrust standing to maintain an action under § 4 of
49
the Clayton Act. 31 Given their own allegations regarding their positions in the
supply/distribution chain, they cannot plead around this issue.
The FLPs, Mag, and Agfa plaintiffs are, however, situated further up the
supply/distribution chain. Nevertheless, based on deficiencies in their allegations,
the Court is led to a similar result. In short, none of these plaintiffs have set forth
sufficient allegations regarding from which level in the supply/distribution chain
they purchased aluminum in order to be able assess their role vis-à-vis other
potential plaintiffs. The Court understands from the allegations that plaintiffs do
not purchase aluminum from the LME warehouses directly, but it is unable to
ascertain how far down the chain their purchases occur.
For instance, Mag and Agfa both allege direct purchases from integrated
producers such as Alcoa and Hydro, but they do not allege whether they made such
purchases before or after any LME warehousing (or, whether the prices they paid
for aluminum were dependent on the Midwest Premium). They allege that they
manufacture products (such as flashlights and lithographic printing plates) that use
aluminum. However, there are insufficient facts from which this Court can
determine whether the aluminum purchased by these plaintiffs has been fabricated
by one or more companies before these purchases have been made. The number of
steps in their supply/distribution chains plainly implicate the directness of their
injury, and whether any damages might be duplicative. Moreover, the Court cannot
31 While these plaintiffs do not assert claims for damages under the federal antitrust laws, and
instead assert only a claim for injunctive relief, plaintiffs must also demonstrate antitrust standing
to assert such a claim. Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 484, 491 (1986) (applying
antitrust standing requirement to claims for injunctive relief); Daniel, 428 F.3d at 437; Paycom, 467
F.3d at 290.
50
adequately analyze whether damages would be speculative without additional,
specific allegations.
The FLPs present similar issues.32 While they have characterized
themselves as “first level” purchasers, it is not clear from whom they buy
aluminum, what form they buy it in, or exactly how they use it once it is bought. In
this regard, the Court notes that some of these plaintiffs may have purchased
aluminum from others who themselves purchased the aluminum from a trader or
broker. Thus, while their complaint certainly alleges that they purchase aluminum,
it is not clear from the complaint whether they are truly “first level” purchasers. It
may be that they are one or more levels below a true first level. As with Mag and
Agfa the answers to these questions are necessary to any assessment of the
directness of their injury, the speculative nature of their damages, the danger of
duplicative recovery, or whether they would be efficient enforcers. Supreme Court
and Second Circuit precedent requires additional specificity to support the FLPs’
standing under the federal antitrust laws.
In sum, as pled, the complaints of Mag, Agfa and the FLPs do not support
antitrust standing. The allegations instead present a complex market structure
with many participants who are not necessarily involved in this lawsuit. In such a
complicated structure, to perform an AGC analysis, the identity and role of market
32 To the extent that the FLPs purchase aluminum from traders or others who were themselves
paying higher than reasonable storage fees; it may be that those traders would not be incented to
pursue claims. Traders may stand to gain more from the arbitrage opportunity than they lose in
increased storage costs. Econometric modelling could presumably predict when the arbitrage
opportunity would exceed expected costs. In this scenario, the FLPs could potentially be the most
efficient enforcers. However, to support this scenario, plaintiffs would need additional allegations
relating to trading dynamics, etc.
51
participants must be set forth in the pleadings. A less complicated market
structure would present fewer complex issues.
IV.
SECTION 1 CONSPIRACY
All plaintiffs here have alleged violations of Section 1 of the Sherman Act.
That is, they have alleged that defendants engaged in a conspiracy to restrain
trade.
Section 1 of the Sherman Act prohibits “[e]very contract, combination . . . or
conspiracy, in restraint of trade . . . .” 15 U.S.C. § 1. While this language casts a
wide net, case law has established that only “unreasonable” restraints of trade are
unlawful. Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988); see also
In re Publ’n Paper Antitrust Litig., 690 F.3d 51, 61 (2d Cir. 2012). A unilateral or
independent business decision that results in a restraint of trade is not a violation
of § 1. Copperweld Corp. v. Ind. Tube Corp., 467 U.S. 752, 775 (1984). To run afoul
of § 1, the unreasonable restraint must result from agreement between two or more
entities. See Twombly, 550 U.S. at 553-54; Theatre Enters., Inc. v. Paramount Film
Distributing Corp., 346 U.S. 537, 540 (1954); Anderson News, 680 F.3d at 182.
Accordingly, plaintiffs must plausibly allege that two or more defendants conspired
to unreasonably restrain trade. It is not enough that trade was impacted by
unilateral business decisions.
In analyzing restraints of trade, courts have typically examined the
participants’ respective market roles: are they competitors, or are they in a
supplier/distributor relationship? Market roles may be suggestive of whether
52
coordinated conduct is designed to interfere with the competitive process or when
competitors have dispensed with normal independent decision making.
In this regard, agreements that fall within the scope of § 1 are descriptive of
such roles and characterized as either “horizontal” or “vertical.” See United States
v. Topco Assocs., Inc., 405 U.S. 596, 608 (1972); Anderson News, 680 F.3d at 182. A
horizontal agreement is an “agreement between competitors at the same level of the
market structure,” while a vertical agreement is a “combination[] of persons at
different levels of the market structure.” Topco, 405 U.S. at 608.
A.
Per Se or Rule of Reason Analysis
Plaintiffs allege that defendants have engaged in per se violations of § 1 of
the Sherman Act. It is unnecessary for a plaintiff to make detailed allegations
regarding a relevant market when the violation is “per se” unlawful. Put bluntly,
the pleading burden as to market definition is lower for per se violations of § 1.
Courts analyze the legality of restraints under two frameworks: the “per se” rule or
the “rule of reason.” State Oil Co. v. Khan, 522 U.S. 3, 10 (1997); see also Paycom,
467 F.3d at 289.33 Both the per se rule and the rule of reason are used to assist a
court or fact-finder in forming a judgment about the competitive significance of a
challenged restraint. NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 103
(1984).
33 Plaintiffs argue that it is premature and unnecessary for this Court to resolve whether a rule of
reason or per se analysis should be applied in these cases. That is undoubtedly true. But resolution
of the issue for fact-finding purposes is separate from ensuring that there are sufficient allegations to
support the claims themselves. In this regard, when a rule of reason analysis is potentially (and,
here, likely) required, plaintiffs have an obligation to allege a relevant market. This of course allows
the parties to conduct appropriate discovery.
53
Most antitrust claims are evaluated under the rule of reason. Paycom, 467
F.3d at 289. Most vertical agreements and mixed agreements (those with both
horizontal and vertical aspects) are analyzed in this manner. The “rule of reason” is
the standard used to assess whether restraints not unlawful per se nonetheless
violate § 1 of the Sherman Act. See Leegin Creative Leather Prods., Inc. v. PSKS,
Inc., 551 U.S. 877, 885-86 (2007). A rule of reason analysis requires a court to
weigh all of the circumstances surrounding the challenged conduct to determine
whether the alleged restraint is unreasonable, taking into account the nature of the
specific business, the industry, the restraint’s history, and whether the defendant
has market power. Id.; see also Gatt, 711 F.3d at 75 n.8.34
The purpose of a rule of reason analysis is to enable a finder of fact to first
determine whether a restraint imposes an unreasonable restraint on competition.
State Oil, 522 U.S. at 10; Paycom, 467 F.3d at 290. As a threshold matter, a
plaintiff must allege the plausible existence of a combination that causes an
unreasonable restraint of trade. The burden shifts to defendant to present the
procompetitive value of the practice; if defendant carries that burden, then the
burden shifts back to plaintiff, who must show that the same procompetitive effect
could have been achieved by less restrictive means. Virgin Atl. Airways Ltd., v.
British Airways PLC, 257 F.3d 256, 264 (2d Cir. 2001). Under a rule of reason
34 “In this Circuit, a threshold showing of market share is not a prerequisite for bringing a § 1 claim.”
Todd v. Exxon Corp., 275 F.3d 191, 206 (2d Cir. 2001); K.M.B. Warehouse Distribs., Inc. v. Walker
Mfg. Co., 61 F.3d 123, 129 (2d Cir. 1995) (“If a plaintiff can show an actual adverse effect on
competition, such as reduced output . . . we do not require a further showing of market power.”).
54
analysis, plaintiff can only recover if the challenged conduct reduced competition,
thereby harming consumers. Id.
In contrast to the typical analysis of vertical, and mixed horizontal and
vertical agreements, horizontal agreements between competitors are considered the
most potentially pernicious and are generally treated as “per se” unlawful. See,
e.g., Topco, 405 U.S. at 608, 611 (noting that horizontal agreements to engage in
price fixing or market allocation are per se illegal under § 1 of the Sherman Act).
The per se rule is a presumption of unreasonableness based on “’business certainty
and litigation efficiency.’” Atl. Richfield, 495 U.S. at 342 (quoting Arizona v.
Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 344 (1982)). “It represents a
‘longstanding judgment that the prohibited practices by their nature have a
substantial potential for impact on competition.’” Id. (quoting FTC v. Superior
Court Trial Lawyers Ass’n, 493 U.S. 411, 433 (1990) (internal quotation marks
omitted). Horizontal price fixing—that is, price fixing by competitors in the same
market—is per se illegal. United States v. Socony-Vacuum Oil Co., 310 U.S. 150,
223-24 (1940); Todd, 275 F.3d at 198.
To apply the per se rule, a court generally must have experience with the
type of restraint at issue in order to predict with confidence that it would be
condemned under the rule of reason; only when such predictability is present should
the court apply the per se rule. Maricopa County Med. Soc’y, 457 U.S. at 344. The
importance of this requirement cannot be overstated. The point of choosing
between a per se or rule of reason framework is, in large part, driven by a desire to
55
maximize litigation efficiencies and reduce litigation and evidentiary burdens where
clearly appropriate. It simply takes less time and fewer resources to analyze
antitrust claims under a per se framework. Applying a per se framework is an
acknowledgement of a court’s familiarity with a type of restraint—such familiarity
that it is assumed that no business rationale would counterbalance its
anticompetitive nature. The rule of reason applies when a court does not have or
should not have such confidence in its assessment of the challenged restraint. The
rule of reason is a judicial recognition that businesses change and entire industries
transform in unforeseen ways that call for new answers to old questions. As time
goes on, the roles of market participants may become fluid, and predictability may
consequently diminish. In order not to unduly interfere with the functioning of an
efficient market, the natural development of an industry, and healthy competitive
processes, courts should apply the per se rule only when truly certain of that it
applies to the conduct at hand. Without that certainty, courts risk providing a
solution in search of a problem, and might “fix” problems that Congress never
intended to be remedied by the federal antitrust laws.
A vertical restraint is not generally illegal per se unless it includes some
agreement on price or price levels. Bus. Elecs., 485 U.S. at 735-36. “Vertical
restraints that do not involve price-fixing are generally judged under the ‘rule of
reason, which requires a weighing of the relevant circumstances of a case to decide
whether a restrictive practice constitutes an unreasonable restraint on
competition.’” Anderson News, 680 F.3d at 183 (quoting Monsanto Co. v. Spray-Rite
56
Serv. Corp., 465 U.S. 752, 761 (1984)). “Any combination which tampers with price
structures is engaged in an unlawful activity.” Socony-Vacuum, 310 U.S. at 221.
Group efforts to raise, lower, or stabilize prices directly interfere with the free play
of market forces and constitute unlawful price fixing. Id. “Where the means for
price fixing are purchases or sales of the commodity in a market operation or, as
here, purchases of a part of the supply of the commodity for the purpose of keeping
it from having a depressive effect on the markets, such power may be found to exist
though the combination does not control a substantial part of the commodity.” Id. at
224.
B.
Allegations of Concerted Action
In order for plaintiffs plausibly to allege coordinated conduct in violation of §
1, they must allege plausible allegations of concerted action. Allegations merely
consistent with unilateral action are insufficient. See Twombly, 550 U.S. at 556-57;
Monsanto, 465 U.S. at 761; Copperweld, 467 U.S. at 768; Anderson News, 680 F.3d
at 183. “[T]here is a basic distinction between concerted and independent action . . .
.” Monsanto, 465 U.S. at 761. Allegations must support a unity of purpose,
common design and understanding, or a meeting of the minds in an unlawful
agreement. Cf. Am. Tobacco Co. v. United States, 328 U.S. 781, 810 (1946).
Plaintiffs need not, however, plead direct evidence of conspiracy. See
Anderson News, 680 F.3d at 183. Conspiracies are rarely evidenced by explicit
agreements—they must nearly always be proven through “‘inferences that may
fairly be drawn from the behavior of the alleged conspirators.’” Id. (quoting
57
Michelman v. Clark-Schwebel Fiber Glass Corp., 534 F.2d 1036, 1043 (2d Cir.
1976); see also Mayor & City Council of Balt. v. Citigroup, Inc., 709 F.3d 129, 136-37
(2d Cir. 2013) (in many antitrust cases, “smoking gun” evidence can be hard to come
by, and thus a complaint must set forth sufficient circumstantial facts supporting
an inference of conspiracy).
At the pleading stage, plaintiffs here must allege sufficient facts to support
(not “prove” or even “demonstrate”) a plausible inference that defendants reached
an agreement; a complaint merely alleging parallel conduct alone is not sustainable.
Twombly, 550 U.S. at 556; see also Mayor & City Council of Balt., 709 F.3d at 13536 (“[A]lleging parallel conduct alone is insufficient, even at the pleading stage.”);
Anderson News, 680 F.3d at 184. In cases in which there is obvious parallel
conduct and the question is whether it is the product of coordinated or unilateral
decision making, a plaintiff must allege additional facts that point toward a meeting
of the minds. Twombly, 550 U.S. at 557.
Even conscious parallelism in pricing among competitors is not itself
unlawful. Id. at 553-54; In re Publ’n Paper, 690 F.3d at 62. By engaging in
conscious parallelism, firms in a concentrated market may lawfully recognize
shared economic interests and, in effect, lawfully market power by setting their
prices at a profit maximizing, supra-competitive level. Brooke Grp. Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 227-28 (1993). Conscious parallelism
alone is consistent with both lawful independent conduct and an unlawful
conspiracy; the mere fact of even conscious parallelism is, therefore, insufficient to
58
establish an antitrust violation. In re Publ’n Paper, 690 F.3d at 62. “The
inadequacy of showing parallel conduct or interdependence, without more, mirrors
the ambiguity of the behavior: consistent with conspiracy, but just as much in line
with a wide swath of rational and competitive business strategy unilaterally
prompted by common perceptions of the market.” Twombly, 550 U.S. at 554.
“Plus-factors” may provide the additional circumstances necessary to permit
a fact-finder to infer a conspiracy. Examples of plus-factors are a common motive to
conspire, actions taken against economic self-interest, and a high level of inter-firm
communications. In re Publ’n Paper, 690 F.3d at 62; Apex Oil Co. v. DiMauro, 822
F.2d 246, 253-54 (2d Cir. 1987) (suggesting that allegations that are consistent only
with market actors who are aware of and anticipate similar actions by competitors
would be insufficient to support the existence of a tacit agreement).
Twombly is a particularly instructive case. There, plaintiffs alleged that the
parallel conduct of defendant telecommunications companies evidenced an unlawful
conspiracy. 550 U.S. at 548-51. The Supreme Court found that defendants’ parallel
conduct, even when plainly unfavorable to competition, did not state an antitrust
claim; that is, such conduct, absent some factual context suggesting agreement, as
distinct from identical, independent action, was insufficient to state a claim. Id. at
548-49. The Court stated:
Without more, parallel conduct does not suggest
conspiracy, and a conclusory allegation of agreement at
some unidentified point does not supply facts adequate to
show illegality. Hence, when allegations of parallel
conduct are set out in order to make a § 1 claim, they
must be placed in a context that raises a suggestion of a
59
preceding agreement, not merely parallel conduct that
could just as well be independent action.
Id. at 556-57.
In Twombly, plaintiffs alleged that the incumbent telephone companies had
engaged in parallel conduct and agreed to refrain from competing against one
another. Id. at 550. Plaintiffs argued that such an agreement could be inferred
from defendants’ failure meaningfully to pursue “attractive business
opportunit[ies]” in markets where they possessed “substantial competitive
advantages.” Id. at 551 (alteration in original). In sum, plaintiffs’ allegations
amounted to “some illegal agreement may have taken place between unspecified
persons at different [incumbent telephone companies] . . . at some point over seven
years . . . .” Id. at 560 n.6. Plaintiffs’ pleadings also “mentioned no specific time,
place, or person involved in the alleged conspiracies.” Id. at 565 n.10.
Anderson News presents a contrasting set of allegations. A magazine
wholesaler sued defendants for a violation of § 1, on the basis that they had
conspired to divide the market and drive it out of business. 680 F.3d at 170-72.
There, plaintiff alleged that ten specific executives engaged in meetings and
communications at specific dates and times to plan an illegal concerted boycott. Id.
at 187-89. Plaintiff also alleged that some of the executives made statements that
“may plausibly be interpreted as evincing their agreement to attempt to eliminate
[plaintiffs] as wholesalers in the single-copy magazine market and to divide that
market . . . .” Id. at 187. Plaintiff also recited specific telephone calls and emails
circumstantially supporting a conspiratorial agreement. Id. at 188.
60
More recently, in Mayor & City Council of Baltimore, the Second Circuit
reviewed whether allegations of certain parallel conduct in the auction rate
securities market were sufficient to support a § 1 conspiracy. Plaintiffs alleged that
defendant banks conspired with each other to simultaneously stop buying auction
rate securities for their own proprietary accounts, causing auctions to fail and the
market to collapse. 709 F.3d at 131-32. The Court found that the allegations
supported only parallel conduct. Id. at 138.
The Court began by noting that the crucial question in a Section 1 case is
whether the challenged conduct stems from an agreement, and that the existence of
such an agreement is a legal conclusion to be determined by the court—and not a
factual allegation. Id. at 135-36 (citing Starr, 592 F.3d at 319 n.2 (2d Cir. 2010)).
The Court further stated that plaintiffs must allege additional circumstances
supporting an inference of conspiracy; merely alleging that parallel conduct
occurred is insufficient to overcome a motion to dismiss because it would “risk
propelling defendants into expensive antitrust discovery on the basis of acts that
could just as easily turn out to have been rational business behavior as they could a
proscribed antitrust conspiracy.” Id. at 136-37. The Court found that defendants’
alleged actions—an en masse flight from a collapsing market in which they had
significant downside exposure—made perfect sense in light of their business
interests. Id. at 138. This made the case different from Starr, in which specific
allegations supporting an inference that defendants’ parallel conduct was against
their own economic self-interest led the Second Circuit to conclude that plaintiffs
61
had plausibly alleged an antitrust conspiracy. See id. at 138-39 (citing Starr, 592
F.3d at 327.) Accordingly, the Court affirmed defendants’ motion to dismiss. Id. at
140.
C.
Discussion of Plaintiffs’ § 1 Claims
In order to make out their § 1 conspiracy claim, plaintiffs must plausibly
allege facts that support (1) an agreement amongst the warehouse defendants to
restrain load-outs of aluminum (not the price of aluminum), and (2) an agreement
between the trader defendants and the warehouse defendants to effectuate this
scheme. Plaintiffs have failed to do so.
Certain facts alleged in all of the complaints underpin plaintiffs’ § 1
conspiracy claim: over just a few years, stocks of aluminum in the Detroit area
increased and load-outs in that area decreased substantially, causally increasing
storage costs and the Midwest Premium. Plaintiffs, whose purchases of aluminum
in some way incorporated the Midwest Premium, thus paid more than they
otherwise would have. Put simply, according to plaintiffs, the owners of aluminum
stocks conspired to obtain and increase already high levels of inventory, and the
warehouses assisted by delaying load-outs and not increasing load-out rates.
Plaintiffs further allege that the trader defendants enhanced delays with high
levels of warrant cancellations. The LME’s role was to allow all of this to happen,
obtaining greater revenues from storage fees as a result (also, in part, leading to an
inflated value for the LME itself). Plaintiffs allege that defendants’ behavior
62
constituted an output restraint which led directly to an increase in the Midwest
Premium, the classic example of anticompetitive conduct that is illegal per se.
The simplicity of this narrative masks the complexity of the market
structures plaintiffs also allege, and that in light of those structures, efficient
market behavior supports defendants’ actions as logically independent and
unilateral. Frankly put, the economics of the alleged conspiracy as pled do not
work. The allegations, measured against fundamental economic theory, do not
contain sufficient “factual content that allows the court to draw the reasonable
inference” that defendants engaged in an anticompetitive conspiracy. Iqbal, 556
U.S. at 678. In light of these economics, the factual allegations suggest only “the
mere possibility of misconduct,” Iqbal, 556 U.S. at 679, and do not “nudge[]
[plaintiffs’] claims across the line from conceivable to plausible,” Twombly, 550 U.S.
at 570.
In this regard, the Court is not choosing between competing plausible
inferences. Rather, the Court’s examination of each of the complaints leads to the
following: all plaintiffs have set forth sufficient facts to support that the Midwest
Premium increased; they have alleged that this occurred as a result of load-out
delays; and they have alleged that they have paid more as a result. But the
allegations tell a story consistent with market-driven behavior by traders and
warehouses rather than unlawful conspiracy. It does not make economic sense—
that is, it is not economically plausible without more—for defendants to have
63
conspired to achieve an end that the law of supply and demand, combined with the
passage of time, would have itself achieved in the absence of a conspiracy.
This is particularly so when it is entirely unclear how the rise in the Midwest
Premium—a price component added after defendants’ involvement has ceased—
could or would have benefitted defendants. Defendants do not compete on the price
of aluminum, because they do not sell it; rather, they trade warrants or sell storage
space, and compete on the rates they charge for aluminum storage, or on load-out
efficiency, or on location—none of which have anything to do with the Midwest
Premium.
This breaks into the following pieces:
Plaintiffs have plausibly recited the overall mechanics of raising the Midwest
Premium: stockpiling aluminum and then using the built-up inventory to delay
load-outs, thereby raising the storage costs that are a component of the Midwest
Premium. For this to be a plausible outcome of an unlawful conspiracy, defendants
must somehow have benefitted—otherwise it does not make sense. That is,
defendants must have stood to benefit in some way from collective action.
Plaintiffs allege that defendants bought, stockpiled and held in order to take
advantage of an arbitrage opportunity. (FLP Compl. ¶ 355.) That is, plaintiffs
acknowledge that there was an economic advantage to buying and holding due to
the “contango” that resulted from the economic recession. (Id. ¶¶ 390-92.) But
plaintiffs also acknowledge the vast majority of trading activity relating to
aluminum stored in LME warehouses takes place among financial entities, rather
64
than users of aluminum. (See Mag Compl. ¶ 24(a).) Thus, plaintiffs have not
alleged any facts suggesting that the defendant traders would have had any
rational business motive to sell to users of aluminum before or after the expected
price rise had occurred. There are no alleged customer relationships between the
traders and the aluminum users. Accordingly, even if the alleged conspiracy results
in harm to aluminum users, it is therefore not in actuality “in restraint of trade.”
Based on plaintiffs’ own factual allegations, the arbitrage opportunity
resulted from market forces: it made sense for traders to obtain a futures contract
at a low price now, with the bet that the price would increase as the country
recovered from the recession. The defendant traders are alleged to have taken one
side of a trading position—which means that someone else took the other. But
plaintiffs do not allege that they ever took the other side of such a trade.
In this context, a buy/hold strategy is perfectly consistent with letting market
forces—particularly in the context of an anticipated economic recovery—do the work
of creating higher prices. Higher prices, in this context, equating with a higher
futures price of aluminum. In such an economic context, supply and demand are
sufficient to accomplish this. In this regard, too, a profit-driven desire to own more
of a good that is cheap now and anticipated to become more expensive later is
consistent with lawful competitive behavior. Thus far, profit-maximizing behavior
would suggest precisely that which is alleged to have occurred here: a trading firms’
accumulation of ownership positions in aluminum, and holding that aluminum to
increase expected profits.
65
Important to the economics are plaintiffs’ allegations that stocks of aluminum
and load-out delays were already increasing and the Midwest Premium was already
rising before the acquisitions of the warehouses by the trader defendants in 2010.
(See FLP Compl. ¶¶ 14(c), 16, 31, 161; Mag Compl. ¶¶ 52, 71). Therefore, if
plaintiffs allege the conspiracy existed before 2010, the warehouse defendants
would have had to have separately conspired with each other to create load-out
delays. But if the warehouse defendants were creating such load-out delays, what
reasonable motivation would Goldman, JP Morgan, and Glencore have had to
acquire them? To get them to agree to do that which they were already doing? And
at significant cost? Acquiring the warehouse defendants would make more sense if
they were not prior participants and had to be acquired in order to ensure their
participation. Plaintiffs’ allegations of a conspiracy between the trader defendants
and the warehouse defendants simply do not square with the increases in
aluminum stocks, load-out delays, and the Midwest Premium before 2010.
But who conspired with whom is an issue that extends beyond this temporal
issue. Based on plaintiffs’ allegations, the number of conspiring entities is
significant—and given the identity of those entities, the number of employees and
potentially active co-conspirators within this group is large and geographically
dispersed. Notably, plaintiffs also do not allege that the warehouse defendants, the
LME or the trader defendants compete in a particular market. While the law does
not require particularized allegations of the “who, what, when and where” of a
conspiracy, it does require more than generalized statements that a conspiracy
66
existed or that the defendants agreed to engage in it. See Starr, 592 F.3d at 321,
325; Port Dock, 507 F.3d at 121.
The conspiracy plaintiffs allege consists of three groups of actors, none of
which are alleged to compete with one another: the LME, the trader defendants,
and the warehouse defendants. Plaintiffs allege that at least some of the
defendants were on one or more LME committees; presumably this is the basis for
some amount of the allegedly conspiratorial communication (one of plaintiffs’
alleged plus-factors). But it is unclear who was on any such committee when, and
how the composition or decision-making changed when the trader defendants
acquired the warehouses in 2010. This is particularly significant in light of the preexisting facts (pre-conspiracy) of increasing aluminum stocks, delays and Midwest
Premium. Thus, generalized allegations of participation on LME committees are
alone insufficient.
Further, plaintiffs allege that the trader defendants were legally separate
from the warehouse defendants. (See, e.g., FLP Compl. ¶¶ 116-23, 131-41).35 There
is no basis for an assumption that the mere fact of affiliation necessarily means that
individuals employed by Goldman Sachs would have communicated with
individuals employed by Metro to effect a conspiratorial agreement, nor is there any
allegation that such communication occurred. That is also true with respect to JP
Morgan and Henry Bath,36 and for Glencore and PMUSA. Similarly, that
35 This legal separateness is supported by the defendants’ Rule 7.1 corporate disclosure statements.
(See ECF Nos. 55, 120, 123, 124, 261, 262, 324, 507, 519.)
67
Goldman, JP Morgan and Glencore may have had an ownership interest in the
LME does not lead to a plausible inference of communication between them, or
between them and the warehouse defendants before or after 2010.
In addition, however, plaintiffs allege that the LME oversees certain aspects
of the warehouses. The LME does not itself own any aluminum or warehouses, but
instead oversees a global network of warehouses. (Mag Compl. ¶ 24(e).) The LME
has agreements with the owners of these warehouses. (FLP Compl. ¶ 285). This is
a vertical relationship: the LME has contracted with the warehouses for services.
Separately, the warehouses would have had to have conspired with one another,
and somehow, the trader defendants would have needed to have conspired with
them. It is unclear whether plaintiffs are alleging that by virtue of common
ownership, Goldman and Metro can be assumed to have conspired, but if that is so,
did the conspiracy between unaffiliated firms occur between the trading arms (that
is, did Goldman and its affiliates conspire with JP Morgan and Glencore and their
affiliates?) or did the warehouse defendants conspire and bring along the trading
arm of the financial-firm defendant with which they were affiliated?
1.
Rule of Reason or Per Se
Plaintiffs claim to have alleged a horizontal conspiracy in restraint of trade,
but they do not allege that defendant warehouses, the LME or the trader
36 The statement by Blythe Masters cited by plaintiffs in their briefs (Agfa Compl. ¶ 56; Comm.
Compl. ¶ 66; Cons. Compl. ¶ 72; FLP Compl. ¶ 379; Mag Compl. ¶ 55) suggests only that JP
Morgan’s ownership of Henry Bath gave it access to more information and data on the physical
aluminum market. Standing alone, it does not provide evidence of anticompetitive conduct in the
warehouse storage market, nor does it provide any evidence of communications between Henry Bath
and JP Morgan for the purpose of effectuating a conspiratorial agreement.
68
defendants are horizontal competitors. In the absence of the latter, the former
cannot be correct. Further, while the allegedly anticompetitive conduct affected the
price of aluminum, that conduct only affected one of several components of the price
of primary aluminum (specifically, the Midwest Premium). Moreover, the
defendants are not sellers of primary aluminum. Accordingly, their conduct cannot
amount to “price fixing.” The alleged restraint of trade is therefore not one with
which this Court has experience, and it would be inappropriate to apply the per se
rule.
A rule of reason analysis requires an inquiry into market conditions. Leegin,
551 U.S. at 885-86. Plaintiffs must therefore allege a plausible market in which
defendants restrained trade. But plaintiffs have failed to allege such facts.
Rather, plaintiffs have alleged numerous potential “relevant markets.”
However, there are no allegations supporting who the players are in such markets
or how defendants’ conduct caused unreasonable restraints of trade in those specific
markets. How does the defendants’ conduct restrain trade—and what trade? How
does it decrease competition and in what market? Does it decrease competition in a
market for LME-warehoused aluminum or in a market for warrants and futures
contracts in LME-warehoused aluminum, both or neither?
2.
Parallel Conduct
Plaintiffs argue that they have alleged a plausible horizontal conspiracy
supported by allegations of parallel conduct and plus-factors. This Court disagrees.
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Defendants allege that plaintiffs engaged in the following parallel conduct:
that the trader defendants cancelled warrants in parallel (leading to increased
aluminum inventories at LME warehouses), and the warehouse defendants delayed
load-outs in parallel.37 But even conscious parallelism is insufficient to support
allegations of conspiracy. Twombly, 550 U.S. at 553-54; In re Publ’n Paper, 690
F.3d at 62. And while plus-factors such as a common motive to conspire, actions
taken against economic self-interest, or a high level of inter-firm communications
may provide the additional circumstances necessary to permit a fact-finder to infer
a conspiracy, In re Publ’n Paper, 690 F.3d at 62, plaintiffs have failed to allege such
plus-factors here.
Plaintiffs allege as a plus-factor that defendants’ alleged conduct was against
their self-interest. Economically, this is incorrect. In fact, it was entirely consistent
with their self-interest. Plaintiffs’ allegations regarding the recession, the contango,
and the resulting arbitrage opportunity support sensible parallelism—whether
conscious or not —by the trader defendants. The way that defendants acquired,
held, and cancelled warrants simply furthered this arbitrage opportunity, on which
it was in each’s individual economic self-interest to capitalize.
Similarly, to the extent the warehouse defendants could have sped up loadouts and did not, or even delayed them, plaintiffs again allege that this led to higher
storage revenues. But the warehouse plaintiffs were, after all, in the business of
collecting rent for storage; and the longer the storage, the higher the rent. In this
37 Plaintiffs do not allege why the cancellation of warrants would not alone lead to delays in loadouts as the warehouses struggled to keep up.
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sense it would be in the warehouse defendants’ economic self-interest to turn a
minimum load-out rule into a maximum, so long as they were not losing business
due to their slow load-out times. Indeed, this point is further supported by
plaintiffs’ allegations that warehouse inventories began increasing in 2009, before
the trader defendants even acquired the warehouse defendants, as these allegations
suggest that the warehouse defendants were motivated to act in this manner of
their own accord.
Plaintiffs also cite Metro’s incentive payments to aluminum producers along
with the fact that the warehouses abided by what the plaintiffs themselves
acknowledge was a per-city—as opposed to a per warehouse—rule, and a “no net
load-in” rule, as further evidence of plus-factors. Yet these actions are, on their
face, perfectly consistent with the warehouses acting in their economic self-interest.
There is no allegation that any of the rules were imposed during a period or in a
manner suggestive of conspiracy. Further, abiding by these rules in a manner
which maximized stocks and storage duration was clearly within the warehouse
defendants’ economic self-interest. There is also no allegation that the incentive
payments were not recovered in expected storage fees; indeed, plaintiffs’ allegations
regarding the duration of storage supports the opposite conclusion.
Finally, there are insufficient allegations to support inter-firm
communications. Committee membership and part-ownership of the LME is,
standing alone, not enough. It is no more than suggestive of potential opportunity
to communicate, and the Second Circuit has held that “[t]he mere opportunity to
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conspire does not by itself support the inference that . . . an illegal combination
actually occurred.” Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs.,
Inc., 996 F.2d 537, 545 (2d Cir. 1993). And there are no particular facts as to who
was on a particular LME committee at a particular time that a rule change was
announced or at which suspect action by committee members or others within their
control occurred. The FLPs allege that certain defendants had representatives on
the Warehouse Committee—but that committee is not alleged to have standalone
decision-making abilities, or even to be particularly influential. Plaintiffs allege
only that it advised the executive committee (see FLP Compl. ¶ 5(b)), and there is
no allegation that any defendant was ever a member of the executive committee.
Here, plaintiffs’ allegations again amount only to a potentially opportunity to
communicate, which is nothing more than a bare assertion incapable of supporting
a plus-factor on its own.
Finally, plaintiffs allege the existence of various inquiries and investigations
into defendants’ conduct. In Starr, such investigations were found supportive of
conspiracy in the context of specific additional facts and circumstances separately
supporting conspiracy. See 592 F.3d at 323-25. But there was no suggestion in
Starr that inquiries or investigations alone can plausibly support an alleged § 1
conspiracy, nor has there been in any other binding case law.
Plaintiffs allege that defendants conspired and agreed to effect an anticompetitive output restraint that caused artificially inflated prices. As discussed
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above, in the absence of sufficient allegations, these are conclusory statements
insufficient to support plaintiffs’ claims.
V.
MONOPOLIZATION CLAIMS
Section 2 of the Sherman Act addresses both the actions of a single firm to
monopolize or to attempt to monopolize, and conspiracies and combinations to
monopolize. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 454 (1993). The
conduct of a single firm violates § 2 only when the firm acts to maintain a monopoly
or threatens actual monopolization; unilateral conduct does not otherwise violate §
2. See id. at 454-55.
To state a claim under § 2, a plaintiff must allege plausible facts that
defendant possesses market power (sometimes referred to as “monopoly power”) in a
relevant market, and the willful acquisition or maintenance of such power as
“distinguished from growth or development as a consequence of a superior product,
business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S.
563, 570-71 (1966); see also PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 105 (2d
Cir. 2002). A firm possesses market power when it has the ability to raise price by
restricting output. PepsiCo., 315 F.3d at 107.
In the absence of direct measurements of a defendant’s ability to control
prices or exclude competition, its market power is determined by reference to the
“area of effective competition,” which is determined with reference to a specific
market. Id. at 108. For this reason, monopolization claims generally start with
defining relevant product and geographic markets. See, e.g., id. at 105, 108;
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AD/SAT v. Associated Press, 181 F.3d 216, 226 (2d Cir. 1999). “’For a monopoly
claim to survive a Rule 12(b)(6) motion to dismiss, an alleged product market must
bear a rational relation to the methodology courts prescribe to define a market for
antitrust purposes—analysis of the interchangeability of use or the elasticity of
demand, and it must be plausible.” Chapman v. N.Y. State Div. for Youth, 546 F.3d
230, 237 (2d Cir. 2008) (quotation omitted).
A relevant product market consists of “products that have reasonable
interchangeability for the purposes for which they are produced—price, use and
qualities considered.” United States v. E.I. du Pont de Nemours & Co., 351 U.S.
377, 404 (1956); Todd, 275 F.3d at 200. Products are considered reasonably
interchangeable if consumers treat them as acceptable substitutes. PepsiCo, 315
F.3d at 105. Cases are subject to dismissal when plaintiff fails to allege a plausible
explanation as to why a market should be limited in a particular way. See Todd,
275 F.3d at 200 nn.3-4 (collecting cases).
For instance, two products may to some degree be interchangeable
substitutes and should therefore be included within the same market. Such a
situation occurs when the products have sufficiently high cross-elasticities of
demand. A sufficiently high cross-elasticity of demand exists when consumers
would respond to a slight increase in price of one product by switching to another.
Todd, 275 F.3d at 201-02; AD/SAT, 181 F.3d at 227. The question reduces to
whether a hypothetical cartel would be unable to increase prices due to the ability
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and willingness of consumers to switch to other products. See Todd, 275 F.3d at
202; AD/SAT, 181 F.3d at 228.
The court must also determine the boundaries of a relevant geographic
market, that is, its area of effective competition. Tampa Elec. Co. v. Nashville Coal
Co., 365 U.S. 320, 327 (1967); United States v. Eastman Kodak Co., 63 F.3d 95, 104
(2d Cir. 1995). The geographic market encompasses the geographic area in which
purchasers of the product can practicably turn for alternative sources of the
product. Tampa Elec., 365 U.S. at 327. A geographic market is determined by “how
far consumers will go to obtain the product or its substitute in response to a given
price increase and how likely it is that a price increase for the product in a
particular location will induce outside suppliers to enter that market and increase
supply-side competition in that location.” Heerwagen v. Clear Channel Commc’ns,
435 F.3d 219, 227 (2d Cir. 2006).
Defining a relevant market is not always required to determine the presence
or absence of monopoly power, as monopoly power may be proven directly by
evidence of the control of prices or the exclusion of competition. PepsiCo, 315 F.3d
at 107; Todd, 275 F.3d at 206 (“If a plaintiff can show that a defendant’s conduct
exerted an actual adverse effect on competition, this is a strong indicator of market
power.”); Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 98 (2d Cir. 1998)
(market power “may be proven directly by evidence of the control of prices”).
Alternatively, monopoly power may be shown by one firm’s large percentage share
of a defined relevant market. PepsiCo, 315 F.3d at 107; Tops, 142 F.3d at 98.
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However, in most cases this type of direct evidence is absent and defining a relevant
market acts as a surrogate for market power. PepsiCo, 315 F.3d 101 at 107.
While “defining” a relevant market may not always be required, that does not
eliminate the requirement that plaintiffs reference a particular market.
Heerwagen, 435 F.3d at 229 (“[P]laintiff cannot escape proving her claims with
reference to a particular market even if she intends to proffer direct evidence of
controlling prices or excluding competition.”).
A.
Attempted Monopolization
To state an attempted monopolization claim, a plaintiff must allege plausible
facts supporting that the defendant has engaged in predatory or anticompetitive
conduct, with a specific intent to monopolize, and a dangerous probability of
success. See Spectrum Sports, 506 U.S. at 456; PepsiCo., 315 F.3d at 105; Tops, 142
F.3d at 99-100.
B.
Essential Facility
The FLPs have asserted that the LME warehouses in the Detroit area are an
“essential facility.” (FLP Compl. ¶ 303.) The Supreme Court has never recognized
such a standalone claim. See Verizon Commc’ns Inc. v. Law Offices of Curtis V.
Trinko, LLP, 540 U.S. 398, 410-11 (2004). But certain lower courts—including the
Second Circuit—have posited that a party may violate § 2 by denying another party
access to an “essential facility.” See, e.g., Twin Labs., Inc. v. Weider Health &
Fitness, 900 F.2d 566, 569-70 (2d Cir. 1990). To sustain such a claim, plaintiffs
must allege plausible allegations that “an alternative to the facility is not feasible.”
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Id. at 570. In fact, this is akin to a type of monopoly maintenance claim. The
Supreme Court also suggested in Trinko that an essential facility claim “should be
denied where a state or federal agency has effective power to compel sharing and to
regulate its scope and terms.” 540 U.S. at 411 (quoting P. Areeda & H. Hovenkamp,
Antitrust Law 150 ¶ 773e (2003 Supp.)).
The principle behind prohibiting denial of an essential facility to a competitor
is to prevent a monopolist in a relevant market from using its power to inhibit
competition in another market. Twin Labs., 900 F.2d at 568. Most essential
facilities are natural monopolies and the like (such as electric power lines, a
basketball arena, a football stadium, and a ski mountain.) Id. at 569 (collecting
cases).
C.
Discussion of the § 2 Claims
As set forth above, plaintiffs allege a number of markets. However, no
plaintiff has alleged the necessary facts to support any plausible product or
geographic markets. No complaint cites facts regarding the interchangeability of
products. For instance, if plaintiffs could have switched to a lower-cost polymer
instead of aluminum, they might have avoided the increases in the Midwest
Premium. The binding nature of bilateral contracts with third parties referencing
the Midwest Premium would be irrelevant to this product market, but might be
relevant to a product market defined to include such contracts. Simply naming
possible markets, even when combined with general allegations of an ability to
increase prices, is insufficient.
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Plaintiffs argue that they need not allege a relevant market since they have
alleged direct evidence of monopoly power, namely, defendants’ ability to increase
price. But in each complaint with a monopoly allegation (that is, all but Mag’s and
Agfa’s), this argument is based on hundreds of paragraphs of allegations that
combine the conduct of many separate actors. The law does not recognize a “shared
monopoly.” See FLM Collision Parts, Inc. v. Ford Motor Co., 543 F.2d 1019 (2d Cir.
1976) (allegations of a “shared monopoly” amount to no more than a “§ 1 claim
under another name”); RxUSA Wholesale Inc. v. Alcon Labs., 391 Fed. App’x 59, 61
(2d Cir. 2010) (same). The only entity as to whom there are allegations of monopoly
power that are supported in part would be Metro—but while Metro controlled a
certain percentage of warehouse space, it is not alleged to have itself controlled the
warrants and futures contracts that determined when aluminum went into and took
a place in line to get out of its warehouses. Thus, even Metro’s arguable power as
alleged does not translate into a power to raise the Midwest Premium.
There are no factually supported allegations that Goldman Sachs (the
financial entity) has market power in some cognizable market, or that any of the
other financial-firm or warehouse entities do.
Even as to Metro, however, the allegations are insufficient. There is no
allegation that Metro owns any aluminum, can control when warrants are
cancelled, whether they are moved to an LME-approved warehouse or a non-LME
warehouse, or where that warehouse is located. Thus, the plaintiffs’ allegations do
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not support the ability of Metro alone to raise price. Accordingly, there are
insufficient allegations of direct market power.
This, then, leads to a requirement that plaintiffs allege the necessary
elements of a relevant antitrust market, specifically, reasonable interchangeability
amongst specific products and a geographic area of effective competition. Plaintiffs
have failed to meet this requirement. As set forth above in the § 1 rule of reason
analysis, simply naming a potential market is only the first step in defining the
relevant market.
This exercise is made all the more complicated and necessary by plaintiffs’
specific allegations. Plaintiffs allege that the U.S. is a net importer of aluminum.
(See FLP Compl. ¶ 303; Mag Compl. ¶¶ 33-34). Thus, aluminum regularly comes
into the U.S. from overseas. There are insufficient allegations as to where this
product enters the U.S. and its distributional reach for the Court to draw any
conclusions as to likely geographic boundaries of the relevant market.
It may also be the case that the product market here is somehow defined with
reference not to aluminum itself, but in terms of contractual arrangements
referencing the Midwest Premium as a price component. If that is the case, the
product and geographic boundaries of the relevant market might be determined by
reference to the terms of these contracts. But plaintiffs have made no specific
allegations to this effect.
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In short, plaintiffs’ monopolization and attempted monopolization claims as
to all defendants fail due to the insufficiency of allegations regarding a relevant
market.
Failing to have plausibly alleged a relevant market also requires dismissal of
any essential facilities claim. As an initial matter, it is unclear whether plaintiffs
intend their use of the term “essential facilities” to constitute a standalone basis for
a claim. As alleged, it cannot. The Supreme Court has never recognized such a
claim. See Trinko, 540 U.S. at 410-11. In terms of a species of monopolization
claim, it similarly requires allegations of a relevant market. In addition, at the
most basic level, it also requires allegations supporting why the facility is, in fact,
essential. Plaintiffs’ claims in this regard are conclusory, and must be rejected.
VI.
STATE LAW CLAIMS
Plaintiffs’ state law claims rely upon the same allegations of conspiracy,
monopolization and unfair conduct as their antitrust claims. For the same reasons,
none survive.
In addition, plaintiffs’ large array of statutory claims fail for the additional
reason that plaintiffs have failed to state how defendants’ conduct violated any
particular statute. Instead, the statutes are listed—and the Court and the
defendants are then to determine how and why the alleged conduct violated a
particular statute. This is insufficient to meet even the basic requirements of Rule
8. Iqbal, 556 U.S. at 678 (“A pleading that offers labels and conclusions or formulaic
recitation of the elements of a cause of action will not do.”).
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Further, every state statute requires a direct or indirect allegation
supporting proximate cause. Cf. Lexmark Int't Inc. v. Static Control Components,
Inc., 134 S.Ct. 1377, 1390 (2014) (a court should generally presume that a statutory
cause of action is limited to plaintiffs whose injuries are proximately caused by
violations of that statute). Plaintiffs here have failed to include any specific
allegations of proximate cause.
VII.
SEPARATE MOTIONS
In addition to the arguments that plaintiffs lack standing and have failed to
state a claim, Henry Bath, Hong Kong Exchanges and Clearing Limited, Glencore,
and LME Holdings have separately moved to dismiss for lack of personal
jurisdiction. (ECF Nos. 327, 447, 503, 511.) In light of the Court's determinations
that dismissal is appropriate on the basis of both standing and failure to state a
claim, the Court need not and does not reach this additional argument. If plaintiffs
seek to amend, they should take into account the arguments raised regarding
personal jurisdiction. Should any proposed amendment adequately plead standing
and a claim, the Court will then reach the personal jurisdiction arguments in light
of any amended allegations. Accordingly, these motions are DENIED as moot.
Rule 8 provides that a defendant is entitled to notice of the claims brought
against him; Twombly makes clear that at the pleading stage in this antitrust case,
that means that each defendant is entitled to know how he is alleged to have
conspired, with whom and for what purpose. See Twombly, 550 U.S. at 557-58.
Mere generalizations as to any particular defendant—or even defendants as a
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group—are insufficient. See Twombly, 550 U.S. at 555-56. The fact that two
separate legal entities may have a corporate affiliation—perhaps owned by the
same holding company—does not alter this pleading requirement. In the absence of
allegations that corporate formalities have been ignored, courts appropriately and
routinely adhere to legal separateness. See, e.g., De Letelier v. Republic of Chile,
748 F.2d 790, 794-95 (2d Cir. 1984). Here, this means that grouping defendants
who are affiliated together into a single name (e.g. “JP Morgan” or “Glencore” to
encompass affiliated trading and warehouse operations) for pleading purposes does
not resolve this larger issue. Plaintiffs must be able separately to state a claim
against each and every defendant joined in this lawsuit.
As to certain defendants here, that has clearly not occurred. Plaintiffs'
allegations as to a number of defendants, including without limitation, LME
Holdings, Henry Bath, Henry Bath LLC, Hong Kong Exchanges and Clearing
Limited, and Glencore are sparse to the point of near non-existence or are grouped
together with specific allegations relating to their affiliated but legally separate
entities. A number of defendants (specifically, LME Holdings, JP Morgan, Henry
Bath, Henry Bath LLC, Hong Kong Exchanges and Clearing Limited, Glencore,
Glencore Ltd., PMAG and PMUSA) have moved to dismiss on the basis that as to
them, plaintiffs' claims fail for lack of specificity. (ECF Nos. 309-10, 327-29, 331-32,
338-39, 447-48, 503-05 511-13, 520-21.) The Court resolves the instant motions
without the necessity of resolving these additional, individual motions. If plaintiffs
seek to amend, they should take into account the arguments raised regarding lack
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of specificity as to particular entities. Should any proposed amendment adequately
plead standing and a claim as to at least one or more defendants, the Court will
then reach these arguments (and with the benefit of any amended allegations
plaintiffs may then assert).
VIII. LEAVE TO REPLEAD
Leave to amend should generally be granted freely. Fed. R. Civ. P. 15(a)(2);
Foman v. Davis, 371 U.S. 178, 182 (1962). If an amendment would be futile,
however, a court may properly deny leave to amend. Foman, 371 U.S. at 182. This
may occur when a proposed amendment would not cure any deficiencies and would
also fail to state a claim. See Hayden v. Cnty. of Nassau, 180 F.3d 42, 53-54 (2d Cir.
1999) (“[W]here the plaintiff is unable to demonstrate that he would be able to
amend his complaint in a manner that would survive dismissal, opportunity to
replead is rightfully denied.”). A court should judge the adequacy of a proposed
amended complaint using the same standards as those governing the adequacy of a
pleading. Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991).
As set forth above, the Court’s legal analysis indicates that the Consumer
End Users and Commercial End Users cannot plead sufficient facts in support of
antitrust standing. There will always be others who are more directly injured than
them, as well as others who will be more efficient enforcers of federal antitrust laws.
That these plaintiffs only request injunctive relief does not, for the reasons stated,
eliminate this issue. There is no need for this Court to unnecessarily add
complexity to the discovery and fact-finding in this case by permitting these
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plaintiffs to pursue their claims when there are other, more efficient enforcers who
can adequately pursue such relief. Accordingly, leave to replead for these plaintiffs
is denied and this Opinion & Order is final and appealable as to them.
It is unclear, however, whether the FLPs, Mag, and Agfa will be able to both
adequately allege antitrust standing as well as address the other, more meritsbased issues the Court has raised above.38 Accordingly, should these plaintiffs
choose to attempt to replead, they must file any amendment, redlined against their
complaint that is dismissed here, and any motion and memorandum in support,
within 21 days.
IX.
CONCLUSION
For the reasons set forth above, defendants’ motions to dismiss are
GRANTED, except for LME Ltd.’s motion to dismiss, which is DENIED AS MOOT.
Leave to replead is denied as to the Consumer End Users and Commercial End
Users.
38 The Court notes that defendants made numerous arguments in support of dismissal. It is
unnecessary for the Court to address every one as those which it has addressed are sufficient at the
present to resolve the instant motions. However, it should be noted that if plaintiffs present an
amended complaint, the Court is not foreclosing defendants from raising any arguments in support
of futility. The Court will examine any proposed amended complaint and any arguments in response
thereto.
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The Clerk of Court is directed to close the motions at ECF Nos. 309, 312, 316,
327, 331, 333, 338, 341, 447, 503, 511, and 520.
SO ORDERED.
Dated:
New York, New York
August 29, 2014
KATHERINE B. FORREST
United States District Judge
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