In re Aluminum Warehousing Antitrust Litig.

• Decision Date: 26 March 2015
• Docket Number: No. 13–md–2481 KBF.,13–md–2481 KBF.
• Parties: In re ALUMINUM WAREHOUSING ANTITRUST LITIGATION.
• Court: U.S. District Court — Southern District of New York

95 F.Supp.3d 419

In re ALUMINUM WAREHOUSING ANTITRUST LITIGATION.

No. 13–md–2481 KBF.

United States District Court, S.D. New York.

Signed March 26, 2015.

OPINION & ORDER

KATHERINE B. FORREST, District Judge:

In August 2013 plaintiffs filed the first of what would be a large number of lawsuits alleging anticompetitive conduct impacting aluminum pricing. (See, e.g., 14–cv–217 ECF No. 1.¹ ) Numerous actions were filed in various jurisdictions across the country and eventually brought together in this District pursuant to an order of the U.S. Judicial Panel on Multidistrict Litigation. (ECF No. 1.)

This Court dismissed an initial set of pleadings in August and September 2014. (ECF Nos. 571 (“1st MTD Op.”), 583, 586.) Certain plaintiffs—indirect purchasers—were dismissed because it was impossible for them to establish antitrust standing. (See 1st MTD Op. at 33–50.) The remaining plaintiffs then filed amended and proposed amended pleadings. Four plaintiffs who are self-styled “Direct Purchaser Plaintiffs,” to whom the Court has referred as the “First Level Purchasers” or “FLPs,” filed the Third Amended Complaint (the “TAC”). (ECF No. 631 ex. A (“TAC”).) The remaining plaintiffs, Agfa Corporation, Agfa Graphics, N.V. (collectively, “Agfa”), Mag Instrument, Inc. (“Mag”), and Eastman Kodak Company (“Kodak”), filed the Joint Amended Complaint (the “JAC”).² (ECF No. 608 (“JAC”).) All defendants moved to dismiss and opposed the amendments. (ECF Nos. 650, 652, 654, 657–59, 662.)

Two recent decisions of this Court granted the motions to dismiss of four foreign defendants³ due to a lack of personal jurisdiction, and certain other defendants⁴ whose only tie to the events at issue was alleged to be a corporate affiliation with another defendant. (ECF Nos. 728, 731.) Now pending before the Court are defendants' motions to dismiss the JAC (ECF No. 649, 654) and plaintiffs' motions for leave to amend their complaint (ECF Nos. 608, 631.) This Opinion & Order addresses claims against the following defendants: Goldman, Sachs & Co.; Goldman Sachs International; Metro International Trade Services LLC (“Metro”); J. Aron & Company (“J. Aron”); Mitsi Holdings LLC (“Mitsi”); Burgess–Allen Partnership Ltd. (“BAP”); Robert Burgess–Allen; JPMorgan Securities plc; Henry Bath LLC; Glencore AG; Glencore Ltd.; and Pacorini Metals USA LLC (“Pacorini USA”).⁵

Each defendant seeks its own dismissal as well as the dismissal of each claim against it, essentially for the same reasons as during the initial round of motions to dismiss. However, with the benefit of the limited discovery permitted by the Court since its initial decisions, plaintiffs have now added sufficient factual detail to their complaints and have sharpened their story and substantive claims to overcome these arguments, such that they have now stated a plausible claim under § 1 of the Sherman Act (and certain related state law claims) against defendants. The § 2 monopoly claim asserted in the TAC remains legally deficient, as are certain of the TAC's § 1 and other state law claims.

Accordingly, for the reasons set forth below, defendants' motions to dismiss the JAC are DENIED and plaintiffs' motion for leave to amend the JAC is GRANTED; plaintiffs' motion for leave to amend the TAC is GRANTED IN PART and DENIED IN PART. In sum, no defendant who is the subject of this Opinion & Order is dismissed entirely; the Court does, however, dismiss certain claims, specifically the FLPs' claim under § 2 of the Sherman Act as well as the FLPs' random state law claims that do not substantively mirror its remaining claim under § 1 of the Sherman Act.

I. THE HEART OF PLAINTIFFS' ALLEGATIONS

Plaintiffs have spent thousands of pages assembling (or, trying out) various versions of claims that defendants have engaged in anticompetitive conduct. To put it in colloquial terms, they alleged they “smelled a rat” but could neither identify its whereabouts nor its destination. The cats prowled, seeking the hole from which the alleged rat emanated and into which it may have crept. The metaphorical cats have now pointed to a point of origin and destination. Whether there is in fact a rat at all, or whether any rodent has, could or would take up the position indicated remains a question for another day.

Needless to say, it should never take thousands of pages to state a claim. Were it not for the legal standards governing when enough is deemed enough (which allow for more than what this Court might otherwise be inclined to tolerate), the trees felled in an effort to state a claim might be leafing even now.

Plaintiffs' initial pleadings alleged a conspiracy by operators of warehouses approved by the London Metal Exchange (“LME”)⁶ to delay the loading out of aluminum stored in those warehouses. (See ECF Nos. 226, 271–72; 14–cv–6849 ECF No. 1.) According to the initial pleadings, these delays restrained the supply of aluminum, thereby increasing its price. Plaintiffs generally cast these allegations as a conspiracy to fix the price of aluminum—notwithstanding that defendants do not sell aluminum and could not, strictly speaking, fix its price. (See, e.g., ECF No. 226 ¶¶ 47, 117, 124; ECF No. 271 ¶¶ 90, 94; ECF No. 272 ¶¶ 48, 127, 134.) The FLPs (but not Mag, Agfa and Kodak) also alleged that certain defendants had together monopolized various markets. (ECF No. 271 ¶¶ 91, 335–41, 407–413.) These initial pleadings focused on the creation and maintenance of warehouse queues as the core of the allegedly unlawful conduct, but failed to adequately explain how and why the defendant financial institutions participated in or benefited from the conduct. Even as to Metro, the primary alleged wrongdoer, the creation and maintenance of queues was painted in terms that were economically profit-maximizing. What warehouse, paid for a term of storage, would not want the longest legally permissible terms possible? For similar reasons, the inclusion of defendant warehouse companies which were not alleged to themselves have had queues was inadequately explained. How, indeed, would such a warehouse have benefited from queues it did not have, but which its competitors did? And what were the financial institutions doing in the case? How were they a part of the alleged conspiracy? Plaintiffs' theories left much to the imagination.

For a variety of reasons—including incomplete and implausible theories and a lack of relevant factual allegations—this Court dismissed all of plaintiffs' claims, but granted the FLPs, Mag, and Agfa⁷ leave to seek to amend. (1st MTD Op.) Plaintiffs then filed motions presenting more factually detailed and substantively focused proposed pleadings, and Kodak filed its amended complaint as of right.

The FLPs have been particularly unclear as to what they want to allege. They alleged a set of theories in a short-lived proposed Second Amended Complaint (ECF No. 618 ex. 1), another set in the TAC, and yet another in a proposed Fourth Amended Complaint (the “FAC”) (ECF Nos. 688, 690–91). This Court has noted the additional materials that the FLPs propose to include in the FAC; defendants have not yet had an opportunity to respond to this additional material, and accordingly, the Court here focuses on the TAC when evaluating the FLPs' claims.⁸

As explained above, Mag, Agfa, and Kodak have filed the JAC. The JAC, and the briefing in support of the JAC, does a far better job of articulating and supporting clear theories of anticompetitive conduct than the TAC. For this reason, the Court has used the JAC as its primary reference point for claims which overlap with those of the FLPs, though ultimately each complaint and all claims raised therein must rise or fall on their own merits. In large part—with the notable exception of the FLPs' monopolization claim under § 2 of the Sherman Act (and a couple of alternative versions of a Section 1 claim)—the JAC and the TAC both allege a singular core claim directed at the same conduct. In sum, the primary theories alleged in both the JAC and the TAC are now as follows:

Defendants consist of two groups: financial institutions with commodities trading arms that trade financial instruments (such as warrants) tied to physical metals, and operators of warehouses that store metals. Working together, these entities allegedly engaged in a conspiracy to increase the financial institutions' commodities trading profits and warehouse companies' revenues. This was effected—at least in part—by using the financial firms' ability to obtain, retain, and strategically settle aluminum warrants along with their affiliated warehouses' ability to store or agreeing to accommodate storage requests for aluminum. According to plaintiffs, the effect of these concerted actions was to raise the Platts Midwest Premium, which is commonly used as a component of the stated price in contracts for the purchase of aluminum. (See JAC ¶ 2; TAC ¶¶ 468, 471.) These claims are premised on a description of price setting as follows:

The spot metal price for physically delivered aluminum has two standardized components: the LME cash price⁹ and a regional premium (for example, the Platts Midwest Premium). (JAC ¶ 118; TAC ¶ 176.) Together, these components are referred to as the “all-in” price for physical delivery of primary aluminum. (JAC ¶ 118; TAC ¶ 176.) The LME cash price is determined by daily open outcry by the marginal buyer and seller at a specific moment in time using standardized LME contracts covering spot material located in LME warehouses. (JAC ¶ 119.)¹⁰ The LME thus provides for a price discovery mechanism for a standard aluminum contract throughout the world. (JAC ¶ 119; TAC ¶ 177.) The LME cash price is a global price, and does not include the costs of delivery from a seller to a purchaser. (JAC ¶ 119; TAC ¶ 177.) To cover the costs of delivery to a customer, contracts incorporate various regional premiums. (JAC ¶ 120; TAC ¶ 178.) The regional premiums are compiled based on reporting of the preponderance of physical...