In the most recent round of the “Aluminum Antitrust Litigation,” the Second Circuit vacated the district court’s judgment that the plaintiffs lacked standing in three consolidated cases (Eastman Kodak Co. et al v. Henry Bath LLC et al (“Kodak v. Bath”)). Specifically, the Second Circuit found that the circumstances of the plaintiffs in this review were “materially different” from the circumstances in an earlier case (In re Aluminum Warehousing Antitrust Litigation (“Aluminum III”)) that the Second Circuit reviewed in 2016. The Second Circuit’s recent decision is rooted in differences in the economics of the two cases.
Plaintiffs in Kodak v. Bath allege that the defendants conspired to inflate prices in the “primary aluminum market” (which involves aluminum in the form produced at a smelter or primary aluminum plant by original producers, as opposed to “secondary aluminum” that is made from aluminum scrap). The plaintiffs are manufacturers that use primary aluminum to fabricate products and include Eastman Kodak and Fujifilm, among others. The defendants include both financial defendants, such as Goldman Sachs and JP Morgan Chase, that traded in primary aluminum contracts and warehousing defendants that owned and operated aluminum warehouses that were certified by the London Metals Exchange (LME) and that were owned by one of the financial defendants. The plaintiffs allege that the financial defendants acquired large positions in primary aluminum at low prices during the economic downturn that followed the 2008 market collapse and that these defendants then conspired to manipulate the “Midwest Premium” reported by Platts. The Midwest Premium is added to the LME Cash Price to obtain the spot metal price for primary aluminum in the United States and reflects the incremental costs associated with making aluminum deliveries in the Midwest, such as transportation, insurance, and warehouse storage costs. Plaintiffs argue that defendants’ manipulation of the Midwest Premium increased the price that the plaintiffs paid for aluminum.
The Second Circuit’s conclusion in Kodak v. Bath considered economic factors. Specifically, the Second Circuit noted that “[u]nder conventions of the industry” the spot metal price that plaintiffs paid is determined by two components: the LME Cash Price and the Midwest Premium. The Second Circuit also noted that plaintiffs alleged that the Midwest Premium increased from 6.45 cents per pound in 2011 to 20 cents per pound in 2014 and that this increase was attributable to defendants’ conduct. Plaintiffs allege that this increase in the Midwest Premium was attributable to an increase in delivery delays at warehouses controlled by defendants (i.e., an increase in delivery lags from six weeks prior to 2011 to nearly two years by 2014) and to defendants’ control of 80 percent of the LME warehousing capacity in the United States. Finally, the Second Circuit also found that plaintiffs’ primary aluminum contracts referenced spot aluminum prices that included the Midwest Premium and “all were first in line to pay prices affected by the defendants’ alleged inflation of the Midwest Premium.”
This finding differs from the district court’s ruling, as well as the Second Circuit’s own ruling, in the earlier Aluminum III case. Both the district court and the Second Circuit in the Aluminum III case found that the anticompetitive conduct alleged by the plaintiffs occurred “first and foremost” in the LME warehousing services market, not the primary aluminum market, and that the plaintiffs did not allege injury in the LME warehousing market. However, the Second Circuit did not view this as determinative in Kodak v. Bath and further considered the economics of the marketplace, including pricing. In particular, the Second Circuit found that the anticompetitive conduct alleged by plaintiffs, a conspiracy to increase the Midwest Premium, inflated the price in a market in which the plaintiffs participated (i.e., the market for the purchase and sale of primary aluminum, as reflected in plaintiffs’ supply contracts). The Second Circuit contrasted the economics of this case with the economics underlying the Aluminum III case. In the earlier Aluminum III decision, the Second Circuit concluded that the plaintiffs had “disavow[ed] participation in any of the markets in which the defendants operate.” The plaintiffs in the Aluminum III case were end users, both commercial and consumer. The Second Circuit noted that these end users were indirect purchasers who did not participate in the market for warehousing services and who did not claim an injury that was “inextricably intertwined” with the objective of the alleged conspiracy.
While the Second Circuit’s decision gives the plaintiffs standing, it does not resolve the case or complete the economic analysis. For plaintiffs to prevail at trial, several additional economic questions likely will need to be addressed. These questions include: Was there really a significant increase in the delivery lags? If so, is there a non-collusive explanation for the Defendants’ conduct that led to the increase in these delivery lags? If there were increased delivery lags due to a conspiracy, did these delivery lags increase the price of aluminum under the contracts? If there is evidence of an adverse competitive effect due to collusion, was this competitive effect muted (if not eliminated) by other economic factors that determine the spot price of primary aluminum (such as the availability of recycled aluminum)?
In sum, the Second Circuit’s recent decisions show that the mustering of economic evidence which demonstrates that a plaintiff class is impacted by alleged collusive behavior can be key to determining if a plaintiff has standing. Moreover, in “plus factor” cases where there is no explicit evidence of collusion, economic analysis will continue to play a significant role as the focus of the court turns to determining whether the defendants undertook anticompetitive collusive conduct.