SDNY Denies Class Certification On Aluminum Price-Fixing Claims
On July 23, 2020, U.S. District Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York denied a motion for class certification in the Aluminum Warehousing Antitrust Litigation based on plaintiffs’ failure to show that they could establish class-wide impact through common proof. The case is significant, among other things, in its close examination and rejection of plaintiffs’ statistical models based on average impact that mask the existence of putative class members who did not suffer any injury.
Plaintiffs alleged that defendant financial institutions and the aluminum storage warehouses operators they owned violated § 1 of the Sherman Act by conspiring to inflate prices in the market for primary aluminum. Plaintiffs sought to represent a class of “first level purchasers” of aluminum who “purchased primary aluminum from smelters for physical delivery.” As the court explained, “primary aluminum” refers to aluminum in the form produced at a smelter or primary aluminum plant, by its original producer, as opposed to “secondary aluminum,” which refers to reconstituted aluminum scrap. Defendants allegedly colluded to lengthen the queues for loading out aluminum (“load-out queues”) at their warehouses in order to increase the “regional premium” that positively correlates with the queue time. Because this premium formed one component of the price for primary aluminum, the higher regional premium was allegedly passed through to putative class members in the form of higher “all-in” prices for primary aluminum.
In denying the motion for class certification, the court held that the statistical models of plaintiffs’ expert were flawed and therefore could not establish class-wide injury on the basis of common proof. In particular, the court found that plaintiffs’ expert models relied impermissibly on average impact and masked the existence of uninjured class members. The court also found that the anecdotal evidence and employee statements offered by plaintiffs were insufficient to establish that class-wide antitrust injury could be established by common proof. Accordingly, the court ruled that the proposed class failed to meet the predominance requirement of Rule 23(b)(3), which requires a showing that common issues would predominate over individualized ones at a trial on their § 1 claims.
In evaluating plaintiffs’ statistical model, the court began by emphasizing that the Supreme Court’s decision in Comcast Corp. v. Behrend, 569 U.S. 27 (2013) called for rigorous review of expert models purporting to demonstrate that class-wide injury could be established by common proof. Plaintiffs’ models must be consistent with their theory of liability and measure only those damages attributable to their theory of antitrust harm. Applying these principles, the court found that plaintiffs’ expert’s models suffered various fatal flaws. For example, the expert had failed to distinguish harm caused by the alleged conspiracy from economic events not attributable to defendants, including a rule change during the class period that resulted in increased load-out queues. The expert also improperly failed to separate the impact on the regional premium caused by a warehouse not named in the complaint that had been excluded as a source of damages earlier in the case. The court also found that because of the nature of the industry, a “company level analysis” and a contract-by-contract analysis was likely necessary to determine impact. However, the expert’s models relied on average impact. As a result, the models concealed the uninjured class members and yielded false positives.
The court also rejected plaintiffs’ argument that class-wide injury could be established by anecdotal evidence. While documentary evidence could provide additional context and be viewed in conjunction with an expert’s models, the court found that the evidence in this case amounted to no more than broad generalizations by market participants in a selection of documents and could not suffice as common proof that all class members suffered pricing injury throughout the class period. The court also noted that market participants and observers had non-uniform contemporaneous views during the class period, and it was doubtful that views on either side of the spectrum could serve as authoritative proof that all first-level purchasers had suffered pricing injury.
Further, the court suggested that because some proposed class members potentially realized a net economic benefit from the alleged conspiracy, a sufficiently fundamental conflict in the class might exist and therefore bar class certification. The court did not reach a conclusion on this point, however, as it denied class certification on the predominance ground described above.
Finally, the district court also denied plaintiffs’ Daubert motion to exclude the testimony of one of defendants’ experts, who plaintiffs argued had not applied economic expertise in reaching his opinions and had improperly offered legal opinions instead. Defendants’ expert had opined that: (1) fact-intensive examination of individual issues was necessary to ascertain the proposed class members; (2) there were conflicts of economic interest between proposed class representatives and the proposed class members; (3) many proposed class members benefitted from the alleged conduct; and (4) the damages analysis of plaintiffs’ expert was flawed. However, the court found that defendants’ expert’s opinions on each of these points were admissible because, among other reasons, the expert had employed accepted and reliable economic methods in opining that individualized inquiry was necessary to resolve these issues.
While this decision applied the established legal standard for evaluating economic evidence offered in support of class certification, it is notable in the close and rigorous analysis that the court applied to plaintiffs’ model to determine whether it did what it purported to do—show that all class members were subject to proof of common impact. It is also notable in the close and rigorous analysis it conducted to ensure that the purported impact was limited to impact caused by the allegedly wrongful conduct and consistent with the pleaded case, and not by other factors. As the opinion makes clear, it is no longer enough for a plaintiff to excuse fundamental flaws in its economic evidence in support of class certification by arguing that the issue should be left to a jury.