Judges nix consumer antitrust vs steelmakers; Production chain too complex to undergird sprawling class action

By Jonathan Bilyk | Sep 7, 2018

ArcelorMittal USA, Burns Harbor, Ind.   By Ken Lund from Reno, Nevada, USA (Arcelor Mittal Burns Harbor, Indiana) [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

While noting the plaintiffs had presented statements which could indicate price-fixing activity, a federal appeals panel has refused to melt down a lower court’s decision to slice up a potentially massive class action lawsuit accusing U.S. steelmakers of conspiring to jack up prices for raw steel.

In the decision, issued Sept. 6, the three-judge panel of the U.S. Seventh Circuit Court of Appeals said the state laws cited by the plaintiffs in the case could not support their sprawling accusations.

The decision was authored by Seventh Circuit Chief Judge Diane P. Wood, with judges Michael S. Kanne and Ilana D. Rovner concurring.

“We cannot imagine - and plaintiffs have not told us - how one might tackle the task of tracing the effect of an alleged overcharge on steel through the complex supply and production chains that gave rise to the consumer products at issue here,” Judge Wood wrote. “The district court thus appropriately ruled that the claims asserted here were too remote to support a claim under the different state laws plaintiffs invoked.”

The judges also said the plaintiffs’ attempt to amend their lawsuit to exponentially expand the scope and reach of their class action ran the case into the statute of limitations.

The antitrust action first landed in federal court more than 10 years ago, when a group of plaintiffs led by Michigan-based named plaintiff Supreme Auto Transport, sued a collection of the largest U.S. steelmakers, asserting they had conspired to cut production and hike prices for their raw steel, which, in turn, artificially increased prices for an array of consumer goods and products.

Defendants named in the action included ArcelorMittal USA; U.S. Steel; Nucor Corp.; Gerdau Ameristeel; Steel Dynamics; AK Steel Holding Corp.; SSAB Swedish Steel Corp.; and Commercial Metals.

Specifically, the lawsuit alleged ArcelorMittal spearheaded a plan to illegally “improve ‘industry discipline’” through coordinated production cuts, beginning in January 2005. The plaintiffs alleged this resulted in decisions by the steelmakers to close steel mills and reduce output well below capacity at those remaining open.

The lawsuit followed an action brought by a group of about 5,500 manufacturers, metal fabricators and others who bought steel directly from the same group of steel mill operators. In 2014 and 2016, those actions were settled by the defendants for a total of $194 million.

However, the Supreme Auto lawsuit on behalf of so-called indirect steel purchasers suffered a worse fate.

Judges noted seven years after filing the lawsuit, the plaintiffs moved to significantly increase the reach of the action, amending their class definition to include the buyers of products “derived” from steel – a definition the judges noted could potentially include anyone who had bought any product that included any of the steel made at the U.S. mills.

At the federal district court level, Chicago federal Judge Manish Shah dismissed Supreme Auto’s action, calling “implausible” the plaintiffs’ attempts to show how the harm allegedly suffered by plaintiffs under the expanded definition – the alleged increased cost of the end products made from steel, such as cars and ovens – actually benefited the producers of the raw steel.

Judge Shah noted the plaintiffs particularly failed to account for the “role of interceding parties” in the distribution chain, noting the plaintiffs failed to “even identify whether the steel in these products came from defendants’ steel mills at all.”

The judge also agreed with the steelmakers that the attempt to amend the lawsuit meant the expanded allegations came too late to stand up under the statute of limitations.

On appeal, the Seventh Circuit judges reached similar conclusions.

“The original complaint defined ‘steel products’ by illustrating the meaning of that term through a list of examples, such as steel sheets, rods, and tubing,” Judge Wood wrote. “All of the examples listed in plaintiffs’ definition are mill output -  that is to say, they are steel products manufactured at steel plants.

“No reasonable defendant, upon reading the original definition, would have imagined that plaintiffs were in fact suing over the thousands of end-use household and commercial goods manufactured by third parties - a reading so broad that it would transform nearly every person in the country into a potential class member.”

This expanded definition amounted to “new claims,” the appeals judges said – claims for which the defendant steelmakers had received no notice “at any time before the expiration of the limitations.”

“Because the original complaint did not give defendants fair notice of the nature and scope of the claims set out in the amended complaint, the amendments do not relate back” to the original complaint, Judge Wood wrote.

The judges also backed Shah’s decision concerning the lack of “proximate causation” between the steelmakers’ alleged scheme and the harm alleged by the plaintiffs who purchased the end-user products which may have included the steel produced in the U.S. mills operated by the defendants.

The judges, however, noted the decision does not directly address the plaintiffs’ central overarching contention concerning the steelmakers’ alleged conduct.

“We express no opinion here on the ultimate question whether these defendants violated the federal antitrust laws,” Judge Wood wrote. “Plaintiffs cite many statements by steel-industry executives that sound suspiciously like invitations to fix prices and outputs.

“…But, to repeat, we do not have a federal case before us. Plaintiffs have pared their action down to a case asserting violations of state laws, and we have concluded that the district court correctly decided that they have not shown how their alleged injury could be traced to defendants’ conduct - a requirement that is just as essential under the state laws as it is under federal law.”

Supreme Auto has been represented by attorneys with the firms of Kirby McInerney LLP, Milberg LLP and Lovell, Stewart, Halebian & Jacobson, all of New York, as well as by Miller Law, of Chicago.

ArcelorMittal has been defended by the Chicago firm of Mayer Brown LLP.

U.S. Steel has been represented by Pittsburgh-based Reed Smith LLP and the Chicago firm of Neal, Gerber & Eisenberg.

Nucor has been represented by Winston & Strawn, of Chicago, and Arnold & Porter, of Washington, D.C.

Gerdau Ameristeel has been represented by the Chicago firms of Katten, Muchin & Rosenmann, and Eimer Stahl LLP.

Steel Dynamics was defended by McDermott, Will & Emery, of Chicago.

The following firms defended AK Steel: Seyfarth Shaw LLP, of New York; Figliulo & Silverman, of Chicago; Paul, Weiss, Rifkind, Wharton & Garrison, of Washington, D.C.; and Frost Brown Todd, of Cincinnati.

SSAB Swedish Steel was represented by the Chicago firm of Sidley Austin LLP.

Commercial Metals was handled by Thompson Coburn LLP, of St. Louis, and Dechert LLP, of Chicago and Philadelphia.



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Organizations in this Story

ArcelorMittal USA Arnold & Porter Law Firm Dechert LLP Eimer Stahl LLP Katten Muchin Rosenman LLP Kirby McInerney LLP Lovell Stewart Halebian Jacobson LLP Mayer Brown Mcdermott Will & Emery Miller Law LLC Neal Gerber & Eisenberg LLP Nucor Corporation Reed Smith LLP Seyfarth Shaw, LLP Sidley Austin LLP Thompson Coburn LLP U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois US Steel Winston and Strawn LLP

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