Bloomberg News

Goldman Sachs Aluminum Antitrust Suits’ Home Up for Debate (1)

December 05, 2013

The bankers are in New York, the exchange is in London and the aluminum is stored mostly around Detroit. The buyers of the metal suing over allegations of price manipulation are scattered across the U.S.

The roughly 25 cases filed in varying combinations against Goldman Sachs Group Inc. (GS:US), JPMorgan Chase & Co. (JPM:US), their warehousing businesses and the London Metal Exchange should be fought in New York, New Orleans or elsewhere, lawyers for the factions argued before a panel of federal judges today.

The defendants are accused of constricting aluminum supplies to drive up prices in violation of U.S. antitrust law.

“The monopoly allegedly occurred in Detroit,” said Christopher Lovell, who filed the first of the lawsuits on Aug. 1 on behalf of Gwinn, Michigan-based aluminum fabricator Superior Extrusion Inc.

The restraint of trade “emanated” from Detroit, where 75 percent of the warehoused aluminum in the U.S. is stored, Lovell told six members of the federal Judicial Panel on Multidistrict Litigation in federal court in Las Vegas.

Accusing Goldman and LME of tying up 1.5 million tons of aluminum and then charging above-market rates for its storage, Superior Extrusion is seeking class status on behalf of buyers who faced the same situation and unspecified money damages that would be tripled under federal antitrust laws.

Later Complaints

Later complaints make similar allegations and demands. Most of the suits were filed in Detroit, four were brought in New York and others in Boston, New Orleans and Los Angeles.

The panel consolidates cases to streamline the pretrial exchange of evidence and taking of depositions.

“The primary means by which defendants accomplished their goal was to hoard, stockpile and manipulate the supply of physical aluminum stored in their warehouses in Detroit,” Lovell argued in a court filing.

Michael DuVally, a spokesman for Goldman Sachs and Brian Marchiony, a spokesman for JPMorgan Chase, have each said the cases are without merit. Both banks are based in New York.

“The center of gravity in the United States, if it’s anywhere, is in New York,” attorney Margaret Zwisler argued before the panel today on behalf of JPMorgan Chase and the London Metal Exchange.

Aluminum Rules

“The issue here is who made the rules and how were they made,” Zwisler said.

Goldman Sachs waived its right to argue before the panel, from which appellate Judge Marjorie Rendell was absent.

Detroit is the world’s second-biggest repository for aluminum stockpiles monitored by LME, the world’s largest industrial metals marketplace. Goldman Sachs’s Metro International Trade Services LLC has the most LME-approved warehouses in the city.

Delays of as long as 16 months in filling aluminum orders raised prices for consumer-product makers, according to brewer MillerCoors LLC, which hasn’t sued, and flashlight maker Mag Instrument Inc., which did. Mag, based in Ontario, California, named Goldman, Metro International and LME as defendants in a complaint filed in Los Angeles federal court in August.

Garrett Wotkyns, Mag’s attorney, described a “merry-go-round of metal,” as warehouse operators shifted inventory from one site to another to satisfy output requirements without actually relinquishing control of aluminum stockpiles. Other lawyers today made similar assertions.

Not Simple

Asked by panel member U.S. District Judge Paul Barbadoro whether the defendants would dispute that such inventory movements occurred in Detroit, Zwisler replied, “it’s not that simple.”

“Whether their truck moved from one warehouse to another does not mean there’s something wrong with that,” she said.

Plaintiffs’ lawyer Samuel Rudman, arguing for case consolidation in New York, where he sued on behalf of Peterson Industries Inc., said truck drivers won’t necessarily be witnesses in the case.

LME told members last month it was changing its rules to accelerate withdrawals from depots where waiting times are exceeding 50 calendar days.

Under the changes, slated to take effect April 1, warehouses with excessive delays will be required to ship at least 1,500 metric tons more metal each day than they take in.

Warehouse Review

The exchange also said it would review its warehouse system every six months and is studying its powers to regulate warehousing companies’ charges.

Wotkyns, whose client makes the Maglite-brand flashlight, asked the panel to have the cases heard in Los Angeles, citing the experience of that court’s judges and its capacity to handle the caseload. Phillip Howard, an attorney for Jacksonville, Florida-based pool deck-enclosure maker Master Screens Inc., made similar arguments in support of its preferred venue, Tallahassee, Florida.

The panel heard about 45 minutes of argument today. It didn’t immediately rule.

The case is In Re Aluminum Warehousing Antitrust Litigation, MDL No. 2481, Judicial Panel on Multidistrict Litigation (Las Vegas).

To contact the reporter on this story: Andrew Harris in federal court in Las Vegas at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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