District Court Grants Summary Judgment Against Indirect Purchasers In Aluminum Price-Fixing Case
02/23/2021On February 17, 2021, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York granted summary judgment to defendants that traded commodities and derivatives, and defendants that owned and operated warehouses, in a consolidated action, dismissing claims by aluminum purchasers. In Re Aluminum Warehousing Antitrust Litigation, 13 MD 2481 (PAE) (S.D.N.Y. Feb. 17, 2021). Plaintiffs alleged defendants had conspired to fix the price of aluminum in a distribution channel in which plaintiffs (with one exception) did not participate, but that the conspiracy had the incidental effect of inflating the cost of plaintiffs’ contracts with third parties, most notably aluminum producers. Plaintiffs asserted that even though they did not participate directly in the allegedly restrained distribution channel, they could pursue a claim that defendants violated Section 1 of the Sherman Act. The Court held that plaintiffs were not efficient enforcers, and therefore lacked “antitrust standing” to bring the claims, because they did not contract directly with defendants, their claimed harms were speculative, and their claims risked exposing defendants to duplicative liability.
Aluminum reaches industrial consumers through two paths, both directly, from aluminum producers, and indirectly, after being held temporarily in warehouses. The price of contracts for the aluminum that passes through warehouses includes the Midwest Premium (“MWP”), a benchmark that is tied in part to shipping and handling costs. Plaintiffs alleged that defendants used their control over warehouse logistics to inflate the MWP, and in turn the price of aluminum sold through the warehouses they operated or controlled. Except for one firm that participated in both channels, plaintiffs did not purchase aluminum through warehouses, but instead purchased directly from aluminum producers. Plaintiffs argued that they nevertheless had standing to pursue a claim because plaintiffs’ aluminum contracts with aluminum producers sometimes expressly incorporated the MWP and always “implicitly” incorporated it. Defendants, for their part, argued that plaintiffs lacked standing because they did not purchase aluminum in the allegedly restrained market and were, at best, only indirectly affected. Defendants also asserted that where the MWP was incorporated into plaintiffs’ contracts, plaintiffs could hedge for its fluctuations and mitigate its impact in other ways.
The Court held that the general rule is that only parties that have allegedly contracted with the alleged conspirators may bring suit under the antitrust laws, rejecting plaintiffs’ “umbrella theory” that defendants’ conduct influenced aluminum prices throughout the market regardless of distribution channel. The Court reasoned that it would not depart from the ordinary rule because defendants were alleged to have purposefully influenced (but not directly fixed) the MWP, which, in turn, plaintiffs only indirectly relied on in negotiating contracts with third parties.
The Court also held that more efficient enforcers—the parties that defendants directly contracted with—were readily ascertainable, weighing against finding plaintiffs had antitrust standing. The Court also found that plaintiffs’ damages were speculative because of the multiple layers of decision making between defendants’ alleged conduct and the prices paid by plaintiffs. The Court noted that defendants’ alleged market manipulations were “occasional and lumpy,” and reasoned that it would require a highly complex analysis to determine the impact of defendants’ conduct on the MWP and, in turn, the impact of the MWP on plaintiffs’ negotiations with producers. Finally, the Court held that subjecting defendants to suit by indirect purchasers in this case had the potential to make them liable for every aluminum sale in the United States involving the MWP, which the Court reasoned would be disproportionate to defendants’ alleged ill-gotten gains.
This decision is significant because it explains at length that plaintiffs alleging benchmark manipulation by defendants, with whom they do not transact and who do not control the relevant market, are not efficient enforcers, especially when efficient enforcers are readily ascertainable.