MM Steel, L.P. v. JSW Steel (Usa) Inc.

• Decision Date: 25 November 2015
• Docket Number: No. 14–20267.,14–20267.
• Citation: 806 F.3d 835
• Parties: MM STEEL, L.P., Plaintiff–Appellee v. JSW STEEL (USA) INCORPORATED; Nucor Corporation, Defendants–Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

806 F.3d 835

MM STEEL, L.P., Plaintiff–Appellee

v.JSW STEEL (USA) INCORPORATED; Nucor Corporation, Defendants–Appellants.

No. 14–20267.

United States Court of Appeals, Fifth Circuit.

Nov. 25, 2015.

Reagan William Simpson, Esq. (argued), Marc S. Tabolsky, Esq., Richard Paul Yetter, J. Campbell Barker, Deputy Solicitor General, Yetter Coleman, L.L.P., Houston, TX, Mo Taherzadeh, Taherzadeh Law Firm, Houston, TX, for Plaintiff–Appellee.

Gregory S.C. Huffman, Hunter Mac Barrow, Scott Patrick Stolley, Nicole Williams, Esq., Thompson & Knight, L.L.P., Dallas, TX, Marcy Hogan Greer, Dana Livingston, Roger Dale Townsend(argued), Susan Schlesinger Vance, Alexander Dubose Jefferson & Townsend, L.L.P., Austin, TX, Lisa Schiavo Blatt(argued), Robert J. Katerberg, Elisabeth S. Theodore, Washington, DC, for Defendants–Appellants.

Opinion

STEPHEN A. HIGGINSON, Circuit Judge:

This case concerns the Gulf Coast domestic steel industry. In 2011, two longtime steel industry salesmen opened a new steel distributor, MM Steel, L.P. (“MM”). MM quickly found it difficult to survive because certain steel manufacturers, including Nucor Corporation (“Nucor”) and JSW Steel (USA), Inc. (“JSW”), refused to sell them steel. Shortly before MM closed, MM sued the manufacturers and MM's competing distributors, claiming that the distributors formed an illegal conspiracy to deprive MM of steel and that the manufacturers knowingly joined the conspiracy. After a six-week trial, a jury found the defendants per se liable under Section 1 of the Sherman Act, 15 U.S.C. § 1. The district court trebled the damages to more than $150 million. The defendants timely appealed, but the distributors and one manufacturer settled and dismissed their appeals, leaving JSW and Nucor as the only appellants. Finding, inter alia,insubstantial evidence that Nucor joined this conspiracy, we REVERSE the judgment as to Nucor, but we AFFIRM the judgment as to JSW.

BACKGROUND

I.

In the Gulf Coast domestic steel industry, steel manufacturers sell approximately half of their steel plate to end users, including companies such as Wal–Mart, Exxon, and General Motors, and sell the other half to distributors who then sell the plate to end users. To be profitable, the distributors rely on their supply agreements with the manufacturers. Plaintiff MM is a distribution company that was founded by two steel distributor salesmen—Matt Schultz and Mike Hume. Defendants Nucor and JSW are two major steel manufacturers in the Gulf Coast region.

The record supports the following facts. Schultz and Hume worked together as salesmen at American Alloy (“AmAlloy”), a steel distributor, until they left in 1999 to open an office in Houston for another distributor, Chapel. In spring 2011, Schultz and Hume began planning to leave Chapel to open their own distribution company, MM. As part of their preparation, they met with JSW, from whom they had purchased steel at Chapel. On August 2, 2011, MM and JSW signed a one-year supply agreement for MM to purchase a certain amount of steel plate per month from JSW. MM received a $750,000 line of credit from Wells Fargo, and JSW agreed to extend an additional line of credit for double that amount. On September 1, without providing notice, Schultz, Hume, and two other top Chapel salesmen resigned from Chapel, and officially opened MM.

Chapel and AmAlloy were not pleased that Schultz and Hume had left to open MM. On September 3, AmAlloy executives discussed “do[ing] all we can to help [Chapel] in going after [MM].” Chapel's president, Stan Altman, was overheard telling a Chapel salesman “[i]f you don't have any steel, you can't sell any steel.” On September 8, Altman met with Arthur Moore, AmAlloy's president, and upon leaving the meeting, Moore said “[d]on't worry, we're going to get them.” Chapel informed Moore that Chapel “plan[s] on taking all available courses of actions, legally and otherwise, including notifying any mill that is selling [to MM], that they can no longer expect any future business from Chapel.” As described in more detail below, Chapel and AmAlloy went forward with plans to threaten manufacturers to not sell steel to MM.

II.

On September 15, 2011, Chapel filed a lawsuit against MM and its founders alleging that MM had violated a non-compete agreement. The next day, MM told JSW to hold off on shipments until further notice. On September 20, MM met with JSW. MM informed JSW that the lawsuit prompted their request to stop shipments and raised the possibility of having to return some steel that JSW had manufactured for MM. The day before the meeting between MM and JSW, JSW executives met with AmAlloy's Moore, at Moore's invitation. Moore told JSW's representatives that JSW had a choice to make: “The choice was to do business with American Alloy or to do business with MM Steel.” Later, on September 29, Moore emailed Chapel's Altman about JSW's “ridiculously low” sales prices to MM and said he hoped Chapel would be successful in shutting MM down. On October 4, Chapel and JSW met, and Chapel gave JSW a choice to do business with Chapel or with MM.

Around October 14, Chapel and MM settled the lawsuit over the non-compete agreement. The settlement prohibited MM from contacting and selling to certain customers for six months. MM then told JSW the lawsuit had been resolved and asked for a quote. On October 20, JSW's president, Mike Fitch, told MM that it would not be doing business with MM going forward and that it “understood the gravity of the situation.” The day before JSW told MM it was ending their relationship, JSW emailed Chapel wanting to see “if JSW and Chapel Steel could step up business for [Chapel's] Houston [office] and other locations.” Chapel then internally commented on the “[i]nteresting timing” of JSW's approach to “step up business.”

III.

Nucor and Chapel's relationship dates back to 2000. Nucor supplies seventy-five percent of Chapel's steel, and Chapel is Nucor's largest external customer. On September 1, 2011, Hume left Nucor's Jeff Whiteman a voicemail saying that Hume had left Chapel to start MM and that MM hoped to sell Nucor steel to a longtime Chapel customer. In response, Whiteman immediately emailed Chapel's president to pledge his “fulles support.” Following that email, Chapel executives informed Nucor that MM had partnered with JSW, and Nucor reiterated its support of Chapel by instructing its employees that Nucor would not be quoting MM but “will continue to support our existing customers.” Around September 2, MM's Hume reached out to three separate Nucor employees, including Nucor's President Whiteman, and each employee declined to quote or discuss a potential sale with Hume.

The jury received evidence, which Nucor contests as inadmissible, alluding to a threat allegedly made by Chapel to Nucor before September 5. On September 5, John Sergovic, the president of ArcelorMittal USA, another steel manufacturer not included in this lawsuit, sent an internal email stating that he had been threatened by Chapel's Altman to not sell to MM and that “Stan [Altman] said he made the same comment to Jeff Whiteman at Nucor.”

In early October, Nucor employees dined with Chapel employees in connection with a retirement party. Nucor denies that MM was discussed at this dinner. On October 26, MM asked Nucor for a quote, and Nucor did not respond. Later, on January 5, 2012, after Nucor got a quote request from a similarly named “M and M Steel,” Nucor emailed Chapel asking, “Are these our boys?” Chapel responded, “No our boys are MM Steel but I appreciate you keeping an eye out for them.”

After JSW decided to stop supplying MM, MM began buying steel from North Shore, another distributor and customer of Nucor. North Shore began placing orders on MM's behalf from Nucor. Nucor was not happy to learn about this arrangement because it allowed MM to circumvent Nucor's “practice” of not accepting business that conflicts with the business of a current client in order to “stick with [the original] supply chain”—what Nucor referred to as its incumbency practice. Nucor told North Shore it would be a problem to ship steel to MM, and North Shore stopped ordering steel for delivery to MM. On March 19, 2012, Hume and Schultz secretly taped North Shore's Byron Cooper telling them that Nucor's Whiteman told Cooper that “there's a lot of pressure on the mills to not support [MM] from their biggest customers” and also that Whiteman stated “[t]here's a mandate at Nucor that's against supporting [ ] MM Steel.”

MM closed and officially stopped doing business in August 2013.

IV.

On April 29, 2012, MM sued Nucor, JSW, Chapel, Reliance, AmAlloy, AmAlloy's Moore, and SSAB (an additional manufacturer) in federal court alleging, inter alia,an illegal group boycott in violation of § 1 of the Sherman Act, 15 U.S.C. § 1. MM also brought a claim against JSW for breach of contract. The district court denied defendants' motions to dismiss and motions for summary judgment. SSAB settled before trial for $2.5 million. The remaining defendants proceeded to trial. MM's sole theory of liability was that defendants were per se liable for joining a horizontal group boycott. As illustrated in the jury's answer to Interrogatory Number 1, the jury found that the distributors “conspire[d] to persuade, induce, or coerce any steel mill not to sell steel plate to MM.” Under Interrogatory Number 3, the jury found that Nucor and JSW both “knowinglyjoin[ed] the conspiracy” (emphasis added). This finding resulted in a per se violation of § 1 of the Sherman Act and an award of $52 million.¹The jury also found JSW liable for breaching its agreement to supply MM and awarded damages of $2 million for this breach. The district court denied various motions for judgment as a matter of law and for new trials. MM elected to recover on its antitrust claims, foreclosing recovery on its contract claim, and the district court trebled the damages, entering a final judgment holding all defendants jointly and severally liable.

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