In re Zinc Antitrust Litig.

155 F.Supp.3d 337

In re: Zinc Antitrust Litigation.

14-cv-3728 (KBF)

United States District Court, S.D. New York.

Signed January 7, 2016

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

Pending before the Court are four motions to dismiss claims brought by purchasers of primary zinc under Sections 1 and 2 of the Sherman Act. Plaintiffs allege, inter alia , that defendants, which consist of trading and metals warehouse operating affiliates of Glencore plc, The Goldman Sachs Group, Inc. (“Goldman Sachs”), and JPMorgan Chase & Company (“JPMorgan”), have engaged in a conspiracy to monopolize and otherwise restrain trade in the market of services for zinc stored in warehouses licensed by the London Metal Exchange (“LME”) in the United States, North America, and/or the world, with the intended effect of manipulating the market for special high grade zinc or the market for selling such zinc. Essentially, plaintiffs allege that the purpose and effect of defendants' anticompetitive activity in the market for LME warehouse services was to manipulate the price of zinc premiums, and thus the price of physical zinc.

According to plaintiffs, since May 2010 defendants have engaged in anticompetitive conduct designed to ensure lengthy metals queues at LME-licensed warehouses, creating a supply constraint and artificially high prices in the market for physical zinc. These actions included, inter alia , manipulation of LME rules, strategic warrant cancellations, shuttling zinc between LME-licensed warehouses, hording zinc in warehouses, agreeing to a particular order of the load out of zinc from defendants' warehouses, and falsifying shipping records.

At first glance, the basic storyline and allegations in this case strongly resemble those in the aluminum antitrust multidistrict litigation currently pending before this Court. See In re Aluminum Warehousing Antitrust Litigation (“Aluminum ”), 13-md-2481 (S.D.N.Y.). Indeed, counsel are largely overlapping for both plaintiffs and defendants; and while the plaintiffs are different between the actions, the defendants are not. Under these circumstances, it is perhaps unsurprising that plaintiffs have piggybacked on an early complaint and judicial opinions in Aluminum .¹

Both actions involve allegations that these same defendants entered into anticompetitive agreements to increase load-out queues for metal stored at LME-licensed warehouses in order to drive up the price of premiums that comprise part of the formula used to create global benchmarks for physical contracts for the delivery of those metals. Plaintiffs here are in an analogous market position to the first level purchaser and direct purchaser plaintiffs in Aluminum , and essentially allege the same sort of injury in fact. As was the case in Aluminum , plaintiffs are not themselves zinc producers, traders or warehouse owners; in other words, they are not competitors of defendants in any market. Nor are they consumers of defendants' products (that is, warrants or trading instruments with regard to the traders) or services (warehouse storage with regard to the warehouse operators). In both cases, they are purchasers at the first level of the supply/distribution chain of physical zinc.

While there are certainly many similarities between this case and Aluminum , the allegations differ in important ways that justify different outcomes as to certain claims. One significant distinction is that, in Aluminum , plaintiffs plausibly alleged that Goldman Sachs and Metro needed and used conspirators to assist in their scheme; this led to a plausible series of interconnections, with the following webbed structure:

Here, in contrast, plaintiffs do not plausibly explain why, given Glencore and/or Pacorini's alleged dominance in physical zinc, they needed outside conspirators to assist in the alleged anticompetitive scheme, or, why outside conspirators would want to assist them. An equally significant distinction is that plaintiffs here have far less specific and non-conclusory allegations supporting an inference of anticompetitive agreement. Plaintiffs do not present the specificity of allegations in terms of communications between various defendants that the plaintiffs presented in Aluminum II . In addressing plaintiffs' Section 1 claim in particular, the Court explains these differences and why they lead to a determination that plaintiffs' allegations are insufficient to plausibly state a claim, whereas the allegations were sufficient in Aluminum II .

Turning back to the pending motions, defendants primarily raise common issues including antitrust standing and the plausibility of allegations supporting claims for violations of Sections 1 and 2 of the Sherman Act. Individual motions also articulate reasons why certain defendants should be dismissed for reasons that are specific to those defendants.

The Court has expended significant time considering the pending motions. In addition to the parties' thorough briefing of the issues raised in this complex action, the Court had the benefit of nearly four hours of oral argument in which the parties addressed specific issues that the Court had raised prior to argument. In resolving these motions, the Court has considered all of the briefing as well as the parties' oral presentations.

For the reasons set forth below, the Court GRANTS defendants' motions to dismiss all four claims in plaintiffs' Consolidated Amended Complaint. While plaintiffs' opposition brief has “curb appeal” on a first review (at least with respect to certain claims), closer reading reveals that their arguments are not backed up by the allegations. Digging into the substance of the allegations (both on an individual basis and when viewed in the aggregate), reveals numerous flaws in plaintiffs' pleadings. Put otherwise, if one reads only plaintiffs' opposition brief or the transcript of their presentation at oral argument, without actual reference to the complaint, their claims appear stronger than is actually the case. In reaching its conclusions set forth herein, the Court takes no position on whether defendants' conduct was in fact legitimate—it remains possible that shenanigans drove up the price of physical zinc. But, at long last, plaintiffs have not adequately alleged that such price movement was due to a plausible antitrust violation, as opposed to parallel, unilateral conduct beyond the reach of that statutory scheme.

Plaintiffs have requested leave to amend. Although plaintiffs had considerable opportunity to learn from this Court's decisions in Aluminum when they drafted the operative complaint (a lengthy schedule was designed to that end), and they have not explained how they would seek to supplement their pleadings, the Court will, as discussed below, allow plaintiffs one additional opportunity to replead their most promising Section 2 claims for monopolization and attempted monopolization against defendants Glencore Ltd. and Pacorini Metals USA, LLC.² In contrast, any attempt by plaintiffs to re-plead their Section 1 claim and Section 2 conspiracy claim would be futile, and those claims are therefore dismissed with prejudice.

I. PROCEDURAL BACKGROUND

Plaintiff Duncan Galvanizing Corporation commenced this action by filing a class action complaint on May 23, 2014, alleging antitrust conspiracy and monopolization claims against the London Metal Exchange Limited, LME Holdings Limited, Hong Kong Exchanges & Clearing Limited, Glencore Xstrata plc, Glencore Ltd., Pacorini Metals USA, LLC, The Goldman Sachs Group, Inc., Metro International Trade Services LLC, and JPMorgan Chase & Company. (14-cv-3728, ECF No. 2.)³ Plaintiffs Oklahoma Steel and Wire Co., Inc., Iowa Steel and Wire Co., and Southwestern Wire, Inc., subsequently filed a complaint on June 13, 2014 (14-cv-4290, ECF No. 2), and plaintiff Galvanizers Company filed on July 8, 2014 (14-cv-5066, ECF No. 1), each making similar allegations to those made in Duncan Galvanizing's initial complaint. The Court held a joint initial pre-trial conference for all three actions on July 23, 2014, and directed plaintiffs to file a consolidated amended complaint no later than September 30, 2014. (ECF No. 74.)

After the Court granted several extensions to allow plaintiffs time to frame their consolidated amended complaint in response to the Court's decision on the second round of motions regarding the then-proposed amended complaint in Aluminum (see ECF Nos. 78, 84, 101), plaintiffs filed their consolidated amended complaint on June 17, 2015 (ECF No. 106).⁴ That complaint dropped a number of defendants from this action based on the Court's decisions in Aluminum . (CAC at 13 n.4.) The CAC asserts one cause of action under Section 1 of the Sherman Act for combination and conspiracy in restraint of trade against all defendants, and three causes of action under Section 2 of the Sherman Act—one claim for conspiracy to monopolize against all defendants, and claims for monopolization and attempted monopolization against defendants Glencore Ltd. and Pacorini Metals USA, LLC. (CAC ¶¶ 264-90.)

Defendants collectively filed a total of four motions to dismiss the CAC under Fed. R. Civ. P. 12(b)(6). (ECF Nos. 122, 124, 127, 130.) With leave of Court, plaintiffs filed one omnibus opposition brief in response to defendants' motions on September 17, 2015. (ECF No. 136; see ECF No. 135.) The motions became fully briefed on October 19, 2015. (ECF Nos. 143, 144, 146, 147.) The Court held oral argument on the motions on October 30, 2015. On the day prior to oral argument, the Court issued three Orders informing the parties of a number of issues and questions of particular interest to the Court. (ECF Nos. 149, 150, 151.) The Court appreciates the parties' thoughtful presentations and responses to the Court's questions, and has carefully considered the parties' elaborations of their positions at oral argument in resolving the pending motions.

II. FACTUAL ALLEGATIONS

On these motions to dismiss, the Court...