Class Cert Denied in In Re Aluminum Warehousing Antitrust Litigation

In In re Aluminum Warehousing Antitrust Litigation (Direct Purchaser Plaintiffs), No. 14-cv-3116-PAE (S.D.N.Y.), United States District Judge Paul A. Engelmayer denied class certification based on the failure to plaintiffs’ expert to establish the predominance of common issues among the proposed class members regarding antitrust injury.

Plaintiffs, described in the opinion as “First Level Purchasers” or “FLPs”, each had purchased primary aluminum from smelters for physical delivery within the United States.  (“Primary aluminum” is aluminum in the form produced by original producers, including smelters, as distinct from “secondary”, or reconstituted, aluminum.)

In connection with their antitrust claims under the Sherman Act, 15 U.S.C. §1, et seq., the FLPs sought to certify a class consisting of purchasers of primary aluminum product, from February 2010 to March 25, 2016, whose purchase price was based in whole or part on various aluminum price benchmarks used in the United States, which defendants are alleged to have manipulated to increase the price of primary aluminum.[1]

Fed. R. Civ. P. 23(b) requires that, in order to certify a class, the court find “that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy”.

After detailed review of various expert declarations submitted by both sides, the court found that common questions did not predominate, Op. at 70-118, and therefore denied class certification without reaching the “superiority” element of Rule 23(b).  Op. at 118, fn. 52.

Under Comcast Corp. v. Behrend, 569 U.S. 27, 35 (2013), the court must undertake, at the class certification stage, a “rigorous analysis” of any statistical models relied upon by plaintiffs to establish class-wide antitrust injury.  569 U.S. at 35.  Judge Engelmayer court found that the report of plaintiffs’ principal expert, Dr. Christopher L. Gilbert (the “Gilbert Rep.”), failed to meet the predominance requirement.

The Gilbert Rep. sought to establish that defendants lengthened the waiting times at certain warehouses by loading “excess” amounts there, that longer queues increased the Midwest Premium, one of the key price benchmarks, and that higher Midwest Premiums were passed through to all putative class members in the form of higher all-in purchase prices for physical primary aluminum.  The court found “fatal flaws” in the Gilbert Rep. on these points.  Op. at 86.

The lengthening of waiting times was not shown to be result of the alleged conspiracy on a class-wide basis

The court found that the Gilbert Rep. erred in attributing to the alleged antitrust conspiracy all increases in the actual “load out” rate of (and thus of increased waiting times at) the subject warehouses, without considering the effect of rule changes implemented by the London Metals Exchange (“LME”), which certified the warehouses at issue.

This error was compounded by 1) the Gilbert Rep.’s reliance on delays at the Vlissingen warehouse in Holland, despite plaintiffs’ “unambiguous disavowal of any link between the Vlissingen queue and increases in the Midwest Premium” in the Third Amended Complaint, Op. at 91, and 2) Gilbert’s averaging of warrant cancelations that took place erratically over several years, which failed to isolate the effect on individual class members who may have purchased in periods unaffected by those cancelations.
For these reasons, the court found that plaintiffs had failed to provide a sufficient basis to conclude that the lengthening of waiting times at the subject warehouses caused a class-wide increase in the price paid by plaintiffs.

The Gilbert Rep. failed to consider the effect of longer queues in deflating the LME price

Judge Engelmayer also found that the Gilbert Rep. failed to give adequate consideration to the fact that longer queues had the effect of deflating the LME price, offsetting any increase to the Midwest Premium and affecting members of the putative class differently, depending on when they purchased.

The LME allows the seller of an aluminum warrant to choose which warrant to deliver for settlement, which has the effect of lowering the price of warrants chosen for that purpose.  That, in turn, lowers the LME price “because LME buyers know they will receive warrants encumbered by queues and because traders will always deliver such warrants to close out short positions.”  Op. at 101.

The court rejected each of plaintiffs’ three arguments offered regarding the effect of queues on the LME price.
First, plaintiffs’ argument that the issue should be deferred and addressed by Dr. Gilbert in a later submission failed because Comcast requires plaintiff to establish class-wide effect at the time of certification.  Second, plaintiffs’ reliance on statements and analyses from market participants that longer queues result in higher prices could not “establish on a unitary basis that queue lengths that increased the [Midwest Premium] never brought about offsetting decreases in the LME price”, and lacked support in the data on which Dr. Gilbert relied.  Op. at 104.  Third, Dr. Gilbert’s conclusion that longer queues did not lower the LME price failed to adequately consider the effect of the “contango”, an undisputed market structure that had different effects throughout the class period,  whereby near-term prices of aluminum futures contracts were significantly lower than further-forward prices.
Dr. Gilbert further erred by averaging the estimated effects of queues on the Midwest Premium, and “assum[ing] that each individual class member’s experience conformed with the estimated average”.  Op. at 109.  This ran afoul of the principle that “at the class certification stage, a model proffered as common proof of classwide antitrust injury may be defective . . . where it relies on average impact and thereby masks the experience of uninjured class members.”  Op. at 108, citing Lamictal Direct Purchaser Antitrust Litig., 957 F.3d 184, 192 (3d Cir. 2020) and In re Rail Freight Fuel Surcharge Antitrust Litig., 934 F.3d 619, 626 (D.C. Cir. 2019).

Additional individualized issues

Judge Engelmayer also found that, even if Dr. Gilbert’s model had survived as viable common proof of classwide injury, it would apply only to purchasers from the three smelters in his data, not to the larger set from whom the putative class members purchased.  Op. at 112, fn.49.  Moreover, individualized determinations also would be required regarding whether the purchases of each individual class member were made pursuant to a specific, relevant benchmark, and to exclude any putative class members who failed to qualify as “first-level” purchasers because they bought only form smelters that had acquired aluminum in a prior “smelter-to-smelter” transaction, rather than from a smelter that was also an original producer of the product sold.

This post was written by  Thomas A. Kissane.

[1]  As described and considered by the Court at p. 31of the Op., the final definition of the proposed class, net of various adjustments, was as follows:

All persons who from February 2010 to March 25, 2016 made a first level purchase of a primary aluminum product with a price term based, in any part, on the Midwest Transaction Price, the Platts Metals Week US Transaction Price or other “all in” price used in the United States, or the Midwest Premium, the Platts MW Premium or similar terminology or other regional premium used in the U.S., including, but not limited to, an averaging over a period of days of any such premium or adjusting for a grade or type of primary aluminum product. Excluded from the Class are Defendants, any parent, subsidiary, affiliate, agent or employee of any Defendant, and any co-conspirator. As used in this definition, “primary aluminum product” means “T-bar, sow, standard ingot, foundry alloy T-bar or ingot, extrusion billet, slabs, sheet ingot, molten metal, or rod.”