14‐3574(L)
In re Aluminum Warehousing Antitrust Litigation
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2015
(Argued: March 21, 2016 Decided: August 9, 2016)
Docket Nos. 14‐3574(L); 14‐3581(CON)
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IN RE ALUMINUM WAREHOUSING
ANTITRUST LITIGATION
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Before: JACOBS and HALL, Circuit Judges, and RESTANI, Judge.*
Purchasers of semi‐fabricated and fabricated aluminum allege a conspiracy
to manipulate the price of aluminum. In a nutshell, the claim is that some
aluminum futures traders, having acquired some operators of aluminum
warehouses, manipulated a price component for aluminum in the Detroit metro
* The Honorable Jane A. Restani, Judge for the United States Court of International Trade,
sitting by designation.
area. The United States District Court for the Southern District of New York
(Forrest, J.) dismissed the complaints in this multidistrict litigation and denied
two groups of plaintiffs leave to amend, while permitting a third group of
plaintiffs to amend their complaint. The district court concluded that appellants
lacked antitrust standing because they did not demonstrate that they suffered
antitrust injury or that they were efficient enforcers of the antitrust laws, and that
they would be unable to show that they were efficient enforcers through
repleading. The district court also determined that appellants failed to state a
claim under various state consumer protection and unfair trade practices laws.
We hold that appellants lack antitrust standing on the ground that they did
not (and could not) suffer antitrust injury. We also hold that their myriad state
law claims were inadequately pleaded. Accordingly, we affirm the district court’s
dismissal of appellants’ complaints and denial of leave to amend.
Affirmed.
KIMBERLY A. JUSTICE (Joseph H. Meltzer,
Terence S. Ziegler, Scott M. Lempert, John
Q. Kerrigan, on the brief), Kessler Topaz
Metlzer & Check, LLP, Radnor, PA;
2
Jonathan W. Cuneo, Joel Davidow, Yifei
“Evelyn” Li, Cuneo Gilbert & LaDuca, LLP,
Washington, DC; Daniel C. Girard, Amanda
M. Steiner, Adam E. Polk, Girard Gibbs
LLP, San Francisco, CA, for Plaintiffs‐
Appellants Commercial End Users.
DOUGLAS G. THOMPSON (Michael G.
McLellan, on the brief), Finkelstein
Thompson LLP, Washington, DC; Brian R.
Strange, Keith L. Butler, Strange & Butler,
Los Angeles, CA, for Plaintiffs‐Appellants
Consumer End Users.
RICHARD C. PEPPERMAN II (Suhana S.
Han, William H. Wagener, Yavar Bathaee,
on the brief), Sullivan & Cromwell LLP,
New York, NY; John M. Nannes, John H.
Lyons, Skadden, Arps, Slate, Meagher &
Flom LLP, Washington, DC; Robert D.
Wick, David Haller, Henry Liu, John
Playforth, Covington & Burling LLP,
Washington, DC; Eliot Lauer, Jacques
Semmelman, Chelsea McLean, Curtis,
Mallet‐Prevost, Colt, & Mosle LLP, New
York, NY, for Defendants‐Appellees.
DENNIS JACOBS, Circuit Judge:
Purchasers of semi‐fabricated and fabricated aluminum allege a conspiracy
to manipulate the price of aluminum. In a nutshell, the claim is that some
3
aluminum futures traders, having acquired some operators of aluminum
warehouses, manipulated a price component for aluminum in the Detroit metro
area. The United States District Court for the Southern District of New York
(Forrest, J.) dismissed the complaints in this multidistrict litigation and denied
two groups of plaintiffs – the Commercial End Users (“Commercials”) and
Consumer End Users (“Consumers”) – leave to amend, while permitting a third
group of plaintiffs – the First Level Purchasers (“Purchasers”) – to amend their
complaint. The district court concluded that Commercials and Consumers lacked
antitrust standing because they did not demonstrate that they suffered antitrust
injury or that they were efficient enforcers of the antitrust laws, and that they
would be unable to show that they were efficient enforcers through repleading.
The district court also determined that they failed to state a claim under various
state consumer protection and unfair trade practices laws.
We hold that Consumers and Commercials lack antitrust standing on the
ground that they did not (and could not) suffer antitrust injury. We also hold that
their myriad state law claims were inadequately pleaded. Accordingly, we affirm
4
the district court’s dismissal of Consumers’ and Commercials’ complaints and
denial of leave to amend.
BACKGROUND
The mechanics of the aluminum futures, warehousing, and distribution
markets are exceedingly complex. Detailed information on how the relevant
markets operate is set out in the district court order that is the basis of this appeal
by Consumers and Commercials, In re Aluminum Warehousing Antitrust
Litigation (“Aluminum I”), 2014 WL 4277510 (S.D.N.Y. Aug. 29, 2014), and the
district court order addressing Purchasers’ amended complaint, In re Aluminum
Warehousing Antitrust Litigation (“Aluminum II”), 95 F. Supp. 3d 419 (S.D.N.Y.
2015). This section of the opinion lays out only the facts needed to explain our
analysis and result.
In general, there are two types of warehouses that stockpile aluminum:
those that are affiliated with the London Metal Exchange (“LME”) and those that
are not. Warehouses that are not affiliated with the LME typically store
aluminum for users of physical aluminum, e.g., producers, fabricators, and
5
manufacturers, and are located near those users of physical aluminum. LME‐
warehouses typically store aluminum for derivatives traders and are located all
over the world.
Derivatives traders demand LME‐warehouses because only aluminum
stored in an LME‐warehouse can be used to satisfy an LME futures contract for
aluminum. Such traders are rarely interested in exchanging physical aluminum
at the conclusion of a futures trade; rather, the buyer and seller will almost always
enter into offsetting trades, leaving the aluminum underlying the derivatives
trade unmoved. When derivatives traders do settle a futures contract by
exchanging physical aluminum, they do so by having the seller deliver to the
buyer a “warrant” issued by an LME warehouse. An LME warrant is a right to
obtain a particular lot of aluminum at a particular LME warehouse. LME rules
permit a seller to choose to deliver any warrant that it owns to satisfy a futures
trade because all aluminum in LME‐warehouses is identical, i.e., of a
standardized amount and grade. That means the seller can deliver to a buyer
who is located in South Carolina a warrant for aluminum that is stored in South
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Korea. For this reason, users of physical aluminum much prefer to purchase
aluminum from non‐LME warehouses that are geographically proximate to them.
The price for physical aluminum is set by a formula comprised of two
inputs. Each input is calculated daily and is based on the supply and demand
dynamics for aluminum stored in one of the two types of warehouses. The first
input is the LME Cash Price, which is the global cash spot price of aluminum
purchased on the LME. The LME Cash Price approximates the price of a
standardized amount of a standardized grade of aluminum available for delivery
to an abstract location. Because aluminum in LME warehouses is rarely
delivered, the LME Cash Price does not reflect the cost of delivery. The second
input is based on a survey of the prevailing spot price of aluminum for delivery
that various buyers and sellers of physical aluminum in one geographic locale
report to the trade publication Platts. Because the Platts survey price is based on
the price being paid for actual delivery of physical aluminum, it includes the cost
of delivery.
7
The mathematical difference between the Platts survey price and LME Cash
Price is the regional premium. In theory, the regional premium should reflect the
cost of delivering (and financing and insuring) the local, immediately available
aluminum in a given region. Most contracts for the purchase of aluminum
incorporate the LME Cash Price, the regional premium, and any additional cost
related to the conversion of raw aluminum into aluminum products.
The plaintiffs’ core allegation is that from 2009 to 2012, the defendants
conspired to manipulate the regional premium in the Detroit metro area (the
“Midwest Premium”) so that it no longer accurately reflected the cost of
delivering, financing, and insuring local, immediately available aluminum in the
Midwest. The plaintiffs are three types of purchasers of semi‐fabricated and
fabricated aluminum: Purchasers, which purchased aluminum directly from
aluminum producers; Commercials, which purchased semi‐fabricated aluminum
to manufacture products made of aluminum; and Consumers, which purchased
finished products made of aluminum. The primary defendants are three traders
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and their LME‐warehouse operator affiliates.1 Each trader defendant purchased
its warehouse affiliate in 2010; a subsidiary of each trader defendant was a partial
owner of the LME throughout the class period of 2009 to 2012.
During the global financial crisis, a sharp drop in demand for aluminum in
the United States led to large surpluses at depressed prices. Some of this excess
aluminum was purchased by traders betting that it would be profitable to buy the
commodity, pay to finance and store it in LME‐warehouses, and then sell it via a
futures contract. This arbitrage opportunity, called a “contango” in derivatives
parlance, increased demand for services of LME‐warehouses. LME‐warehouses
make money by charging rent while the aluminum is stored, and exit penalties
when the aluminum leaves; therefore, they have an incentive to store the greatest
quantity for as long as possible.
The plaintiffs allege that as the traders bought their affiliate warehouse
operators, the defendants conspired to increase artificially the cost of storing
1 The pairs are: The Goldman Sachs Group Inc. (the trader) and Metro International Trade
Services LLC (the warehouse operator); JPMorgan Chase & Co. (the trader) and Henry Bath LLC
(the warehouse operator); and Glencore Ltd. (the trader) and Pacorini Metals USA LLC (the
warehouse operator).
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aluminum in LME‐warehouses by creating long “queues” to take aluminum out
of LME‐warehouses. The inflated costs for storing aluminum at LME‐
warehouses, they allege, directly increased the Midwest Premium, which the
plaintiffs claim they eventually paid downstream.
Long queues developed from the interplay between actions taken by the
trader defendants and warehouse operator defendants. To take physical
possession of aluminum stored in an LME‐warehouse, the warrant holder, i.e., the
owner of the lot, “cancels” the warrant, which triggers an obligation by the LME‐
warehouse to load out the aluminum for pick up from its loading docks. The
plaintiffs allege that the wholesale cancelling of warrants by the trader defendants
created backlogs of physical aluminum at their affiliate warehouses; and that
some traders directed the warehouses to reissue warrants to a neighboring
warehouse for the aluminum that just got loaded‐out, which led to a “shuttling”
of aluminum from one warehouse to another. This exacerbated the wait time
because it diverted warehouse resources toward picking up aluminum instead of
loading it out.
10
The warehouse operator defendants also allegedly contributed to the
lengthening queues. For several years before the traders bought the warehouse
operators, LME‐warehouse operators were required to load out a minimum
amount of aluminum each day. But this LME rule did not net out load‐ins, so if a
warehouse took in more aluminum than the daily minimum load‐out amount, the
inventory at the warehouse would grow. Moreover, the rule was applied on a
city‐wide basis, so that a warehouse operator with multiple warehouses in a
single city could comply with the rule by loading out from just one warehouse.
The plaintiffs allege that once the traders purchased the warehouse
operators, the defendants manipulated the implementation of the minimum load‐
out rule to slow down the load out of aluminum. The core allegation is that one
warehouse operator defendant with multiple LME‐warehouses in the Detroit
metro area allegedly began treating the minimum load‐out rule as a de facto daily
load‐out limit. This was done by exploiting the lack of a net out requirement and
city‐wide application of the load‐out rule. The warehouse operator also allegedly
hired fewer employees to work fewer hours and offered incentive payments to
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aluminum traders and producers to keep aluminum at its warehouses.
This slow loading out of aluminum, combined with the trader defendants’
widespread warrant cancellation, allegedly lengthened delivery queues at LME‐
warehouses. The plaintiffs allege that the lengthening delivery queues increased
storage costs at LME‐warehouses, which are reflected in the Midwest Premium;
the resulting inflated Midwest Premium was in turn a component of the price that
the Purchasers paid for aluminum; and Purchasers then passed that inflated cost
to downstream purchasers of aluminum like Commercials, and eventually,
Consumers.
The plaintiffs do not allege that they ever stored aluminum with the
warehouse operator defendants, engaged in futures trades with any of the trader
defendants, or purchased aluminum that was ever present in any of the
defendants’ warehouses.
Consumers, Commercials, and Purchasers sued the defendants under, inter
alia, Section 1 of the Sherman Act, several state antitrust laws, and scores of state
consumer protection and unfair trade statutes. The district court dismissed all
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claims brought by all three groups of plaintiffs. As relevant here, the district
court determined that the plaintiffs had failed to: (i) demonstrate they had
antitrust standing, (ii) allege a plausible antitrust conspiracy, and (iii) state a claim
under any of the state statutes. Moreover, the district court determined that it
would be futile to permit Consumers and Commercials to amend their complaints
because they would be unable to plead around their lack of antitrust standing
given that “[t]here will always be others who are more directly injured than them,
as well as others who will be more efficient enforcers of federal antitrust laws.”
Aluminum I, 2014 WL 4277510, at *39. The district court similarly denied
Consumers and Commercials leave to replead the various state consumer
protection and unfair trade practices claims because their alleged injuries were
too remote. In re Aluminum Warehousing Antitrust Litigation, 2014 WL 4743425,
at *3 n.5 (S.D.N.Y. Sept. 15, 2014). (On the other hand, the district court concluded
that Purchasers might be able to remedy their pleading deficiencies.) Consumers
and Commercials appeal from this order, over which we have appellate
jurisdiction. See Gelboim v. Bank of Am. Corp., 135 S. Ct. 897, 904 (2015).
13
Several months later, the district court denied the defendants’ motions to
dismiss the Purchasers’ amended complaint. In that order, which is not the
subject of this appeal, the district court concluded that the Purchasers, while not
participants in any of the defendants’ markets, had demonstrated they had
antitrust standing because their purchases of aluminum are “inextricably
intertwined with the competitive landscape in which defendants’ alleged scheme
ultimately played out.” Aluminum II, 95 F. Supp. 3d at 442. The district court
also concluded that the Purchasers would be efficient enforcers of the antitrust
laws and that the Purchasers had plausibly alleged an antitrust conspiracy.
DISCUSSION
We review de novo the grant of a motion to dismiss, accept as true all
factual claims in the complaint, and draw all reasonable inferences in the
plaintiffs’ favor. Fink v. Time Warner Cable, 714 F.3d 739, 740‐41 (2d Cir. 2013).
Similarly, we review de novo denial of leave to amend when it was based on an
interpretation of law, e.g., futility. Panther Partners Inc. v. Ikanos Commc’ns, Inc.,
681 F.3d 114, 119 (2d Cir. 2012).
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I
An antitrust plaintiff must show both constitutional standing and antitrust
standing at the pleading stage. “Harm to the antitrust plaintiff is sufficient to
satisfy the constitutional standing requirement of injury in fact, but the court
must make a further determination whether the plaintiff is a proper party to bring
a private antitrust action.” Associated Gen. Contractors of Cal., Inc. v. Cal. State
Council of Carpenters (“AGC”), 459 U.S. 519, 535 n.31 (1983). “[A]ntitrust
standing is a threshold, pleading‐stage inquiry and when a complaint by its terms
fails to establish this requirement we must dismiss it as a matter of law.” Gatt
Commc’ns, Inc. v. PMC Assocs., L.L.C., 711 F.3d 68, 75 (2d Cir. 2013) (citation
omitted). The limitation of antitrust standing to “a proper party” arose because
“[a]ntitrust law has long recognized that defendants who may have violated a
provision of the antitrust statutes are not liable to every person who can persuade
a jury that he suffered a loss in some manner ‘that might conceivably be traced’ to
the conduct of the defendants.” Reading Indus., Inc. v. Kennecott Copper Corp.,
631 F.2d 10, 12 (2d Cir. 1980) (citation omitted).
15
To satisfy the antitrust standing requirement, a private antitrust plaintiff
must plausibly allege that (i) it suffered an antitrust injury and (ii) it is an
acceptable plaintiff to pursue the alleged antitrust violations. See Gatt Commc’ns,
711 F.3d at 76. In order to establish antitrust injury, the plaintiff must
demonstrate that its injury is “of the type the antitrust laws were intended to
prevent and that flows from that which makes defendants’ acts unlawful.”
Brunswick Corp. v. Pueblo Bowl‐O‐Mat, Inc., 429 U.S. 477, 489 (1977). Even a
plaintiff that has suffered an antitrust injury must also demonstrate that it is a
suitable plaintiff, i.e., an “efficient enforcer” of the antitrust laws. Daniel v. Am.
Bd. of Emergency Med., 428 F.3d 408, 438 (2d Cir. 2005).
Typically, we have applied the efficient enforcer inquiry to a plaintiff
asserting a federal antitrust claim for damages. See, e.g., Gelboim v. Bank of Am.
Corp., 823 F.3d 759, 778 (2d Cir. 2016); Gatt Commc’ns, 711 F.3d at 78‐80; Daniel,
428 F.3d at 443‐44. Commercials and Consumers, however, do not bring claims
for damages under federal law; their federal claims are carefully limited to
injunctive relief, while their claims for money are raised under various state laws.
16
We need not resolve the parties’ vigorous dispute over which, if any, of the
efficient enforcer factors apply in this case because we conclude that Commercials
and Consumers fail to satisfy the first requirement of antitrust standing: that they
suffered an antitrust injury.
A
Generally, only those that are participants in the defendants’ market can be
said to have suffered antitrust injury. See Hughes v. Tobacco Inst., Inc., 278 F.3d
417, 423 (5th Cir. 2001) (“Parties whose injuries . . . are experienced in another
market do not suffer antitrust injury.”); Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of
Cal., 190 F.3d 1051, 1057 (9th Cir. 1999) (“Antitrust injury requires the plaintiff to
have suffered its injury in the market where competition is being restrained.”).
“Competitors and consumers in the market where trade is allegedly restrained
are presumptively the proper plaintiffs to allege antitrust injury.” Serpa Corp. v.
McWane, Inc., 199 F.3d 6, 10 (1st Cir. 1999); see also Am. Ad Mgmt., Inc., 190 F.3d
at 1057 (“[C]onsumers and competitors are most likely to suffer antitrust
injury[.]”); SAS of P.R., Inc. v. P.R. Tel. Co., 48 F.3d 39, 45 (1st Cir. 1995)
17
(“[C]ompetitors and consumers are favored plaintiffs in antitrust cases[.]”);
Southaven Land Co. v. Malone & Hyde, Inc., 715 F.2d 1079, 1086 (6th Cir. 1983)
(“The pleading probatively concedes that [plaintiff] is neither a consumer,
competitor or participant in [the relevant] market.”). Courts have also
“recognize[d] the antitrust claims of market participants other than consumers or
competitors,” e.g., potential new market entrants, suppliers, and dealers. Am. Ad
Mgmt., Inc., 190 F.3d at 1057 & n.6 (citing cases).
The universe of potential plaintiffs is not strictly limited to participants in
the defendants’ market. Consumers and Commercials rely on the fact that in Blue
Shield of Virginia v. McCready, 457 U.S. 465 (1982), the Supreme Court “carved a
narrow exception to the market participant requirement for parties whose injuries
are ‘inextricably intertwined’ with the injuries of market participants.” Am. Ad
Mgmt., Inc., 190 F.3d at 1057 n.5; see also Southaven Land Co., 715 F.2d at 1086
(“[A] finding or concession that [plaintiff] is not a direct participant in the
relevant market is not dispositive of the [antitrust] standing issue [because]
McCready instructs that an injury ‘inextricably intertwined’ with the injury
18
sought to be inflicted upon the relevant market or participants therein
may . . . [suffice].”) But McCready does not support Consumers’ and
Commercials’ claim of antitrust injury, and neither do subsequent cases of this
Circuit, or other circuits, or, indeed, later cases from the Supreme Court.
The plaintiff in McCready sought insurance coverage for her
psychotherapy treatment by a psychologist under a health insurance plan that
provided reimbursement for psychotherapy only if provided by a psychiatrist.
Her antitrust action against the health insurance provider and a group of
psychiatrists alleged collusion to exclude psychologists from receiving
compensation under the health insurance plan, to the detriment of psychologists
and their patients. Although she was a participant in the market for receiving
treatment from a psychologist, she was not a participant in the market for
treatment from a psychiatrist or the market for group health insurance.
The Supreme Court concluded that she had plausibly alleged antitrust
injury. The Supreme Court explained that it had previously recognized “two
types of limitation on the availability of the [antitrust] remedy.” McCready, 457
19
U.S. at 473. The first limitation developed in order to avoid the “duplicative
recovery” that might occur were courts to allow “every person along a chain of
distribution to claim damages arising from a single transaction that violated the
antitrust laws.” Id. at 474‐75. The claim in McCready presented no such risk
because the plaintiff had already paid her psychologist. The second limitation
developed to preclude those with injuries “too remote” from, and not proximately
caused by, the antitrust violation from bringing antitrust claims. The McCready
claim likewise did not pose a remoteness problem because her injury was “clearly
foreseeable.” Id. at 479. In fact, her injury was “a necessary step in effecting the
ends of the alleged illegal conspiracy” and “the very means by which it is alleged
that [the health insurance provider] sought to achieve its illegal ends.” Id.
True, the health insurance provider did not ultimately intend to injure the
plaintiff. But the health insurance provider and group of psychiatrists
accomplished their purported goal of harming the psychologists by inflicting
direct harm on health insurance subscribers (like the plaintiff) who wanted to
consult psychologists. Therefore, though she was not a competitor or customer of
20
the conspirators, “the injury she suffered was inextricably intertwined with the
injury the conspirators sought to inflict on psychologists and the psychotherapy
market.” Id. at 484. To explain its reasoning, the Supreme Court offered the
hypothetical of “a group of psychiatrists conspir[ing] to boycott a bank until the
bank ceased making loans to psychologists.” Id. at 484 n.21. Just as “the bank
would no doubt be able to recover the injuries suffered as a consequence of the
psychiatrists’ actions,” the health plan subscriber should as well. Id.
The following year, in AGC, the Supreme Court characterized McCready
this way: the plaintiff “alleged that she was a consumer of psychotherapeutic
services and that she had been injured by the defendants’ conspiracy to restrain
competition in the market for such services.” AGC, 459 U.S. at 538. AGC also
emphasized that, unlike the plaintiff in AGC, the McCready plaintiff “was
directly harmed by the defendants’ unlawful conduct.” Id. at 529 n.19. That is,
the McCready plaintiff was a participant in the market that was the target of the
alleged scheme and in which she directly suffered harm.
Shortly after McCready, we decided a case in which an organizer of a trade
21
show asserted a claim against pay‐television networks that were alleged to have
orchestrated a boycott of the trade show in order to prevent their suppliers and
competitors (television producers and other television networks) from meeting
with one another. Crimpers Promotions Inc. v. Home Box Office, Inc., 724 F.2d
290 (2d Cir. 1983) (Friendly, J.). The plaintiff’s injury, like the injury in McCready,
“was the precisely intended consequence of defendants’ boycott” and “could
hardly have been more ‘direct.’” Id. at 294, 296. And just as the health insurance
plan’s refusal to honor the McCready plaintiff’s claim for psychotherapeutic
services “was a means to defendants’ objective” to harm psychologists, the ruin of
the trade show was the defendants’ “means to eliminate competition.” Id. at 292.
This was sufficient to recognize the trade‐show organizer’s antitrust injury.
Our sister circuits are in accord. The Third Circuit described the McCready
plaintiff as being “directly targeted for harm by parties ultimately wishing to
inflict a derivative harm on a competitor.” Hanover 3201 Realty, LLC v. Vill.
Supermarkets, Inc., 806 F.3d 162, 172 (3d Cir. 2015). To satisfy McCready in the
Sixth Circuit, the plaintiff “must have been ‘manipulated or utilized by
22
[d]efendant as a fulcrum, conduit or market force to injure competitors or
participants in the relevant product and geographical market.’” Province v.
Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir. 1986) (quoting
Southaven Land Co., 715 F.2d at 1086). In other words, the plaintiff must be
directly harmed by the defendants’ manipulative scheme in a certain market, and
the injury that results must be one that operates as “a fulcrum, conduit or market
force,” i.e., “means” to inflict injury on participants in the defendants’ market.
Finally, the First Circuit has also focused on the nature of the plaintiff’s injury in
McCready, reading the case “as [one] in which the plaintiff was a purchaser in the
very market directly distorted by the antitrust violation” instead of some grand
departure from established antitrust injury doctrine. SAS of P.R., 48 F.3d at 46.2
We agree with the First Circuit that the thrust of McCready is that the
2 Indeed, the First Circuit is “doubtful that [‘inextricably intertwined’] – if taken as physical
image – was ever intended as a legal test of standing.” SAS of P.R., 48 F.3d at 46. Not only
would it be difficult to apply, but “such a test would certainly be very hard to square with the
longstanding limitations on claims by stockholders, employees and even indirect purchasers”
and “[n]othing in McCready suggests that it intended to overrule those limitations.” Id.
Moreover, the Supreme Court in AGC and Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S.
328 (1990) – two cases concerning the scope of antitrust standing – “simply reinterpreted the
[‘inextricably intertwined’] phrase as a legal conclusion.” Id.
23
plaintiff was a participant in “the very market directly distorted by the antitrust
violation.” Id. The year after it issued McCready, the Supreme Court likewise
emphasized that the plaintiff in McCready had “alleged that she was a consumer
of psychotherapeutic services and that she had been injured by the defendants’
conspiracy to restrain competition in the market for such services.” AGC, 459
U.S. at 538. In Crimpers, we similarly concentrated on the fact that the trade‐
show organizer’s injury “was the precisely intended consequence of defendants’
boycott” and “could hardly have been more ‘direct.’” Crimpers, 724 F.2d at 294,
296. The McCready and Crimpers plaintiffs were participants in the market that
was the immediate target of the alleged scheme, and that is where they directly
suffered harm at the hands of the defendants.
McCready detailed the plaintiff’s injury as being “a necessary step” in
effecting the conspiracy, and “the very means” by which the conspirators
accomplished their objective, to explain why the health insurance provider and
psychiatrists would care to harm a health insurance plan subscriber who
patronized a psychologist. McCready, 457 U.S. at 479. The Supreme Court
24
recognized that defendants may decide that they can best achieve their
anticompetitive ends by corrupting a market other than their own. Consequently,
most of the time when a putative plaintiff has suffered antitrust injury that is
“inextricably intertwined” with the injury the conspirators ultimately intended to
inflict, it is because the conspirators used the plaintiff’s injury as the “means,”
“fulcrum,” “conduit,” or “market force” to realize their illegal ends. This
observation does not erode the antitrust standing requirement that the putative
plaintiff participate in the market that is directly manipulated by the collusive
conduct. Rather, this observation supplies the reason defendants would bother to
corrupt some market in which they do not participate.
Therefore, to assess the plausibility of a putative plaintiff’s claim to
antitrust injury as being “inextricably intertwined” with the injury the defendants
ultimately sought to inflict, courts ask whether the plaintiff was “manipulated or
utilized by [defendant] as a fulcrum, conduit or market force to injure competitors
or participants in the relevant product and geographical markets.” Southaven
Land Co., 715 F.2d at 1086; see also Crimpers, 724 F.2d at 292 (asking whether the
25
plaintiff’s injury was “a means to defendants’ objective”); IIA Areeda &
Hovenkamp, Antitrust Law ¶ 339, at 145 (4th ed. 2014) (concluding that
McCready “clearly limited” the meaning of the “inextricably intertwined”
exception “to those whose injuries are the essential means by which defendants’
illegal conduct brings about its ultimate injury to the marketplace”).
The Third Circuit’s recent decision in Hanover 3201 Realty illustrates this
well. The plaintiff was a real estate developer that agreed to build a supermarket
in a small town. The defendant was a competing supermarket chain that already
had a location in the same town. The plaintiff alleged that the defendant filed
numerous, baseless challenges to the plaintiff’s development permit applications
to frustrate the entry of a competitor. The Third Circuit concluded that the real
estate developer had antitrust standing under the “inextricably intertwined”
exception. The incumbent supermarket corrupted the market for property
development permits. The direct and intended effect of the incumbent
supermarket’s anticompetitive conduct was to force the real estate developer to
spend time and money fending off obstructionist permit challenges. As a result,
26
the incumbent supermarket hoped that the real estate developer would be unable
to build the location for its competitor, or that its competitor would give up and
move on to another town. As in McCready, a participant in the precise market
that was manipulated was directly harmed by conduct that was “the very means
by which [d]efendants could get to [the incoming competitor].” Hanover 3201
Realty, 806 F.3d at 174. The real estate developer’s injury was “necessary” and
“essential” to the success of the incumbent supermarket’s anticompetitive
scheme, not merely “incidental” or a “byproduct.” Id. at 173, 174.
The upshot is that to suffer antitrust injury, the putative plaintiff must be a
participant in the very market that is directly restrained. Usually, that market is
the one in which the defendant operates, such as when the plaintiff is a
competitor or consumer of the defendant, but sometimes the defendant will
corrupt a separate market in order to achieve its illegal ends, in which case the
injury suffered can be said to be “inextricably intertwined” with the injury of the
ultimate target. Regardless, antitrust injury is suffered by participants in the
restrained market (or markets).
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B
Consumers and Commercials disavow participation in any of the markets
in which the defendants operate. They did not store aluminum in the defendants’
warehouses; they did not trade aluminum futures contracts with the defendants;
and they do not allege that any of the aluminum they purchased was ever stored
in any of the defendants’ warehouses, or was the underlying asset for any of the
defendants’ futures trades. They premise their claim to antitrust injury solely on
their purchases of aluminum and aluminum products on the physical aluminum
market, where prices were allegedly affected by the defendants’ alleged anti‐
competitive behavior. Consumers and Commercials argue that they suffered an
antitrust injury because, under McCready, their role in creating demand for
physical aluminum makes them “inextricably intertwined” with the anti‐
competitive scheme.
Whatever injury Consumers and Commercials suffered, it was not
“inextricably intertwined” with whatever injury the defendants allegedly
intended to inflict. To fall within McCready, Consumers and Commercials had to
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participate in the very market that the defendants directly restrained. They allege
the following anticompetitive conduct: the trader defendants cancelled warrants
en masse; the trader defendants directed the warehouse operators to shuttle
aluminum from one warehouse to another; the warehouse operator defendants
treated the minimum load‐out requirement as a maximum; and the warehouse
operator defendants offered incentive payments to attract more aluminum. All of
this conduct took place (if at all) in the LME‐warehouse storage market, and that
is where the direct, immediate impact would have been felt. Consumers and
Commercials do not and cannot allege that they participated in that market.
Nor were Consumers’ and Commercials’ injuries “a necessary step” in
effectuating the alleged conspiracy to lengthen load‐out queues or increase the
Midwest Premium, or “the very means” by which the defendants did these
things. All of the alleged anticompetitive acts – cancelling warrants, shuttling
aluminum, and slowing load‐outs – were within the defendants’ power to do;
they did not need or use injury to the Consumers or Commercials as a “fulcrum”
or “conduit.” And none of these acts inflicted direct injury on Consumers or
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Commercials; the injury Consumers and Commercials claim was suffered down
the distribution chain of a separate market, and was a purely incidental
byproduct of the alleged scheme.
Commercials and Consumers in effect argue that the “inextricably
intertwined” exception is a “but‐for” cause test: if Commercials and Consumers
did not exist, there would be no real world purchasers of aluminum, and without
users of physical aluminum, there would be no market for aluminum futures or
aluminum warehousing. This approach would limitlessly increase the universe
of potential plaintiffs, and cannot be squared with McCready itself, which held
that courts must apply a “proximate cause” test to alleged antitrust injury.
McCready, 457 U.S. at 477‐78. The “inextricably intertwined” exception still
requires that the anticompetitive conduct proximately cause the antitrust injury.
Undaunted, Consumers and Commercials allege that the defendants also
intended to corrupt the market for primary aluminum, and that the injuries
Consumers and Commercials suffered by paying a higher Midwest Premium
were “inextricably intertwined” with that scheme. This gets McCready
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backwards. Even assuming a plausible allegation that the defendants conspired
to corrupt the primary aluminum market, the purported injuries of Consumers
and Commercials were not “the very means” by which the defendants achieved
that illegal end; insofar as anyone’s injury could be “the very means,” it would be
the injury suffered by participants in the market for LME‐warehouse storage. If
the trader and warehouse operator defendants sought to increase the price for
primary aluminum, and they could not do so directly, one alternative means at
their disposal would be manipulating the LME‐warehouse storage market. That
is, after all, how Commercials and Consumers allege the defendants increased the
Midwest Premium, and thereby the price for primary aluminum. In such a
scenario, injuring the participants in the LME‐warehouse storage market by
forcing them to pay higher storage costs might be deemed the “essential means”
by which the defendants achieve their purported objective. Injury to Consumers
and Commercials remains collateral damage.
In sum, not every collusive scheme will yield plaintiffs that can claim injury
under McCready. Most of the time, conspirators effectuate an anticompetitive
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outcome without reliance on some “fulcrum” or “conduit,” and without need to
corrupt some separate market. The defendants in McCready, Crimpers, and
Hanover 3201 Realty are outliers; they could not achieve their illegal ends
(harming psychologists, television producers and networks, and a newcomer
supermarket) without injuring participants in some other market (a health
insurance plan subscriber, a trade‐show organizer, and a real estate developer).
Unless the market dynamics force conspirators to corrupt a separate market to
achieve their illegal ends, potential McCready plaintiffs do not arise.
For the foregoing reasons, whatever injuries Consumers and Commercials
suffered were not “inextricably intertwined” with the defendants’ alleged
anticompetitive conduct. Consumers and Commercials therefore failed to allege
(and could not allege) antitrust injury, a deficiency that is fatal to all of their
federal and state antitrust‐based claims.
II
Commercials and Consumers purport to bring claims under myriad state
consumer protection and unfair trade statutes arising out of the same
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anticompetitive allegations underlying the antitrust claims. The complaint does
little more than list a couple dozen state statutes in alphabetical order by state,
without pleading any of their elements. The pleading baldly asserts that the
defendants’ violations of those statutes proximately caused their injuries.
Commercials’ and Consumers’ briefing fails to explain adequately how the
defendants’ conduct violated any of the state consumer protection and unfair
trade statutes in the conclusory list. Commercials and Consumers also fail to
demonstrate why any of these claims should survive if the antitrust claims are
dismissed. Indeed, because each statute that the defendants allegedly violated
requires that the violation proximately cause the claimed injury, and because
Commercials’ and Consumers’ alleged injuries are too remote to sustain their
antitrust claims, it would be futile to permit Commercials and Consumers to
amend their complaints. Accordingly, Commercials’ and Consumers’ state law
claims were appropriately dismissed and leave to amend appropriately denied.
CONCLUSION
For the foregoing reasons, we affirm.
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