833 F.3d 151 (2nd Cir. 2016), 14-3574(L), In re Aluminum Warehousing Antitrust Litigation

Docket Nº:14-3574(L), 14-3581(CON)
Citation:833 F.3d 151
Opinion Judge:DENNIS JACOBS, Circuit Judge:
Party Name:In re Aluminum Warehousing Antitrust Litigation
Attorney:Kimberly A. Justice (Joseph H. Meltzer Terence S. Ziegler, Scott M. Lempert, John, Q. Kerrigan, on the brief ), Kessler Topaz Metlzer & Check, LLP, Radnor, PA; Jonathan W. Cuneo, Joel Davidow, Yifei “ Evelyn” Li, Cuneo Gilbert & LaDuca, LLP, Washington, DC; Daniel C. Girard, Amanda M. Steiner, Ad...
Judge Panel:Before: JACOBS and HALL, Circuit Judges, and RESTANI, Judge. [*]
Case Date:August 09, 2016
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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833 F.3d 151 (2nd Cir. 2016)

In re Aluminum Warehousing Antitrust Litigation

Nos. 14-3574(L), 14-3581(CON)

United States Court of Appeals, Second Circuit

August 9, 2016

Argued: March 21, 2016

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Kimberly A. Justice (Joseph H. Meltzer Terence S. Ziegler, Scott M. Lempert, John, Q. Kerrigan, on the brief ), Kessler Topaz Metlzer & Check, LLP, Radnor, PA; Jonathan W. Cuneo, Joel Davidow, Yifei “ Evelyn” Li, Cuneo Gilbert & LaDuca, LLP, Washington, DC; Daniel C. Girard, Amanda M. Steiner, Adam E. Polk, Girard Gibbs LLP, San Francisco, CA, for Plaintiffs-Appellants Commercial End Users .

Douglas G. Thompson (Michael G. McLellan, on the brief ), Finkelstein Thompson LLP, Washington, DC; Brian R. Strange, Keith L. Butler, Strange & Butler, Los Angeles, CA, for Plaintiffs-Appellants Consumer End Users .

Richard C. Pepperman II (Suhana S. Han, William H. Wagener, Yavar Bathaee, on the brief ), Sullivan & Cromwell LLP, New York, NY; John M. Nannes, John H. Lyons, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC; Robert D. Wick, David Haller, Henry Liu, John Playforth, Covington & Burling LLP, Washington, DC; Eliot Lauer, Jacques Semmelman, Chelsea McLean, Curtis, Mallet-Prevost, Colt, & Mosle LLP, New York, NY, for Defendants-Appellees .

Before: JACOBS and HALL, Circuit Judges, and RESTANI, Judge. *


DENNIS JACOBS, Circuit Judge:

Purchasers of semi-fabricated and fabricated aluminum allege a conspiracy to manipulate the price of aluminum. In a nutshell, the claim is that some aluminum futures traders, having acquired some operators of aluminum warehouses, manipulated a price component for aluminum in the Detroit metro area. The United States District Court for the Southern District of New York (Forrest, J.) dismissed the complaints in this multidistrict litigation and denied two groups of plaintiffs— the Commercial End Users (“ Commercials” ) and Consumer End Users (“ Consumers” )— leave to amend, while permitting a third group of plaintiffs— the First Level Purchasers

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(“ Purchasers” )— to amend their complaint. The district court concluded that Commercials and Consumers lacked antitrust standing because they did not demonstrate that they suffered antitrust injury or that they were efficient enforcers of the antitrust laws, and that they would be unable to show that they were efficient enforcers through repleading. The district court also determined that they failed to state a claim under various state consumer protection and unfair trade practices laws.

We hold that Consumers and Commercials lack antitrust standing on the ground that they did not (and could not) suffer antitrust injury. We also hold that their myriad state law claims were inadequately pleaded. Accordingly, we affirm the district court’s dismissal of Consumers’ and Commercials’ complaints and denial of leave to amend.


The mechanics of the aluminum futures, warehousing, and distribution markets are exceedingly complex. Detailed information on how the relevant markets operate is set out in the district court order that is the basis of this appeal by Consumers and Commercials, In re Aluminum Warehousing Antitrust Litigation (“ Aluminum I ” ), 2014 WL 4277510 (S.D.N.Y. Aug. 29, 2014), and the district court order addressing Purchasers’ amended complaint, In re Aluminum Warehousing Antitrust Litigation (“ Aluminum II ” ), 95 F.Supp.3d 419 (S.D.N.Y. 2015). This section of the opinion lays out only the facts needed to explain our analysis and result.

In general, there are two types of warehouses that stockpile aluminum: those that are affiliated with the London Metal Exchange (“ LME” ) and those that are not. Warehouses that are not affiliated with the LME typically store aluminum for users of physical aluminum, e.g., producers, fabricators, and manufacturers, and are located near those users of physical aluminum. LME-warehouses typically store aluminum for derivatives traders and are located all over the world.

Derivatives traders demand LME-warehouses because only aluminum stored in an LME-warehouse can be used to satisfy an LME futures contract for aluminum. Such traders are rarely interested in exchanging physical aluminum at the conclusion of a futures trade; rather, the buyer and seller will almost always enter into offsetting trades, leaving the aluminum underlying the derivatives trade unmoved. When derivatives traders do settle a futures contract by exchanging physical aluminum, they do so by having the seller deliver to the buyer a “ warrant” issued by an LME warehouse. An LME warrant is a right to obtain a particular lot of aluminum at a particular LME warehouse. LME rules permit a seller to choose to deliver any warrant that it owns to satisfy a futures trade because all aluminum in LME-warehouses is identical, i.e., of a standardized amount and grade. That means the seller can deliver to a buyer who is located in South Carolina a warrant for aluminum that is stored in South Korea. For this reason, users of physical aluminum much prefer to purchase aluminum from non-LME warehouses that are geographically proximate to them.

The price for physical aluminum is set by a formula comprised of two inputs. Each input is calculated daily and is based on the supply and demand dynamics for aluminum stored in one of the two types of warehouses. The first input is the LME Cash Price, which is the global cash spot price of aluminum purchased on the LME. The LME Cash Price approximates the price of a standardized amount of a standardized grade of aluminum available for delivery to an abstract location. Because

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aluminum in LME warehouses is rarely delivered, the LME Cash Price does not reflect the cost of delivery. The second input is based on a survey of the prevailing spot price of aluminum for delivery that various buyers and sellers of physical aluminum in one geographic locale report to the trade publication Platts. Because the Platts survey price is based on the price being paid for actual delivery of physical aluminum, it includes the cost of delivery.

The mathematical difference between the Platts survey price and LME Cash Price is the regional premium. In theory, the regional premium should reflect the cost of delivering (and financing and insuring) the local, immediately available aluminum in a given region. Most contracts for the purchase of aluminum incorporate the LME Cash Price, the regional premium, and any additional cost related to the conversion of raw aluminum into aluminum products.

The plaintiffs’ core allegation is that from 2009 to 2012, the defendants conspired to manipulate the regional premium in the Detroit metro area (the “ Midwest Premium” ) so that it no longer accurately reflected the cost of delivering, financing, and insuring local, immediately available aluminum in the Midwest. The plaintiffs are three types of purchasers of semi-fabricated and fabricated aluminum: Purchasers, which purchased aluminum directly from aluminum producers; Commercials, which purchased semi-fabricated aluminum to manufacture products made of aluminum; and Consumers, which purchased finished products made of aluminum. The primary defendants are three traders and their LME-warehouse operator affiliates. [1] Each trader defendant purchased its warehouse affiliate in 2010; a subsidiary of each trader defendant was a partial owner of the LME throughout the class period of 2009 to 2012.

During the global financial crisis, a sharp drop in demand for aluminum in the United States led to large surpluses at depressed prices. Some of this excess aluminum was purchased by traders betting that it would be profitable to buy the commodity, pay to finance and store it in LME-warehouses, and then sell it via a futures contract. This arbitrage opportunity, called a “ contango” in derivatives parlance, increased demand for services of LME-warehouses. LME-warehouses make money by charging rent while the aluminum is stored, and exit penalties when the aluminum leaves; therefore, they have an incentive to store the greatest quantity for as long as possible.

The plaintiffs allege that as the traders bought their affiliate warehouse operators, the defendants conspired to increase artificially the cost of storing aluminum in LME-warehouses by creating long “ queues” to take aluminum out of LME-warehouses. The inflated costs for storing aluminum at LME-warehouses, they allege, directly increased the Midwest Premium, which the plaintiffs claim they eventually paid downstream.

Long queues developed from the interplay between actions taken by the trader defendants and warehouse operator defendants. To take physical possession of aluminum stored in an LME-warehouse, the warrant holder, i.e., the owner of the lot, “ cancels” the warrant, which triggers an...

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