District Court Denies Class Action Certification in Aluminum Price Manipulation Case

A judge for the U.S. District Court for the Southern District of New York has denied the motion put forth by a group of aluminum buyers to certify a class action lawsuit. The plaintiffs, referred to as first level purchasers (FLPs), contended that the defendants, which include large financial institutions and aluminum warehouses, engaged in anticompetitive conduct that increased regional premiums and inflated prices in the primary aluminum market.

In his opinion, Judge Paul Engelmayer wrote that individual analysis of each class member’s transactions would be required to determine whether the purchaser qualified for class membership.

“And once a purchaser was found to have engaged in a covered transaction, further individual attention to other individual transactions would be needed, to assure that defendants were not ‘held liable for losses they did not cause.’ The requirement that class members have purchased primary, as opposed to secondary, aluminum, would similarly appear to require individualized inquiries,” he wrote. “…For all these reasons, the court holds, the FLPs have failed to demonstrate that, at a trial on their claims, common issues would predominate over individualized ones. The opposite is so. The court accordingly denies the FLPs’ motion to certify the proposed class.”

The court also denied a motion to exclude the declaration of the defendants’ expert David Kaplan. The court will issue an order shortly explaining the case’s next steps.

Background

The FLPs brought claims against six sets of defendants, three of which traded in primary aluminum and primary aluminum derivatives on the London Metals Exchange (LME) during the relevant period (the financial defendants), and three of which owned and operated LME-certified warehouses for the storage of metal (the warehousing defendants). The financial defendants are each affiliated with either Goldman Sachs & Co. LLC, J.P. Morgan Securities plc, or Glencore Ltd.

Each group of financial defendants directly or indirectly acquired one of the warehousing defendants in 2010, during a glut in the aluminum market following the 2008 financial crisis. The warehousing defendants are Metro International Trade Services LLC, Mitsi Holdings LLC, Henry Bath LLC and Pacorini Metals USA LLC.

“In the wake of the 2008 financial crisis, a sharp drop in demand for aluminum led to a massive global surplus, depressed price, and a large supply of physical aluminum stored in warehouses. Anticipating that the market for aluminum would improve over time, traders and financial institutions purchased some of this surplus—betting that it would be profitable to buy aluminum, pay to store it in LME warehouses, and then sell it, via a futures contract or other means,” reads the opinion. “In this environment, the financial defendants, ‘seeing opportunities to purchase primary aluminum at low prices in anticipation of future resale at higher prices, acquired substantial aluminum holdings.’ In 2010, when the quantity of aluminum stored in LME warehouses—including aluminum owned by financial defendants—was extremely high, each of the financial defendants purchased one of the warehousing defendants. During the period that followed, delays in the loading out of aluminum from key LME warehouses operated by the warehousing defendants increased considerably. The FLPs allege that defendants conspired to lengthen these load-out ‘queues,’ which—by driving up a regional premium often used as a price component in aluminum supply contracts—increased the all-in price the FLPs paid when purchasing primary aluminum from smelters.”

A complaint was first filed with the court in April 2014 and is ongoing.

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