Appendix — Credit Lyonnais Rouse, Ltd. v. Ocean View Capital, Inc.
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APPENDIX A
COURT OF APPEALS OPINION
United States Court of Appeals
Seventh Circuit
Nos. 00-3979, 01-1148
LOEB INDUSTRIES, INCORPORATED, LOS ANGELES
SCRAP IRON & METAL CORPORATION, AND METAL PREP
COMPANY, INCORPORATED,
Plaintiffs-Appellants,
¥.
SUMITOMO CORPORATION AND GLOBAL MINERALS AND
METALS CORPORATION,
Defendants-Appellees.
LOEB INDUSTRIES, INCORPORATED, LOS ANGELES SCRAP
IRON & METAL CORPORATION, AND METAL PREP COMPANY,
INCORPORATED, Plaintiffs-Appellants,
Wx
JPMoRGAN CHASE & CO.,
Defendants-Appellees.”
ARGUED SEPTEMBER 5, 2001
* For purposes of this opinion we are using the current name of
the bank, which is JPMorgan Chase & Co. That entity includes
both J.P. Morgan & Co., Inc., and Morgan Guaranty Trust Co.
of New York.
yall a a
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Nos. 01-3229, 01-3230
OCEAN VIEW CAPITAL, INCORPORATED, FORMERLY KNOWN
AS TRIANGLE WIRE & CABLE, INCORPORATED, i
Plaintiff-Appellant,
Vv.
SUMITOMO CORPORATION OF AMERICA, SUMITOMO
CORPORATION, GLOBAL MINERALS AND METALS
CORPORATION, ET AL.,
Defendants-Appellees.
Submitted Sept. 13, 20017
No. 01-3485
VIACOM, INCORPORATED, AS SUCCESSOR BY MERGER TO CBS
CORPORATION, FORMERLY KNOWN AS WESTINGHOUSE
ELECTRIC CORPORATION, AND EMERSON ELECTRIC
COMPANY,
Plaintiffs-Appellants,
V.
GLOBAL MINERALS AND METALS CORPORATION AND CREDIT
LYONNAIS ROUSE, LTD.,
Defendants-Appellees.
Argued May 16, 2002.
Decided Sept. 20, 2002.
** After an examination of the briefs and the record in Nos. 01-
3229 and 01-3230, we have concluded that oral argument is
unnecessary. Thus, those appeals are submitted on the briefs
and the record. See Fed. R. App. P. 34(a)(2).
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Ben Barnow, Barnow & Goldberg, Chicago, IL, David H.
Weinstein (submitted), Weinstein, Kitchenoff, Scarlato &
Goldman, Philadelphia, PA, William R. Steinmetz, Reinhart,
Boerner, Van Deuren, Norris & Rieselbach, Milwaukee, WI,
for Loeb Industries, Inc., Los Angeles Scrap Iron & Metal
Corp. and Metal Prep Co., Inc.
Sanford P. Dumain (submitted), Milberg, Weiss, Bershad,
Hynes & Lerach, New York City, for Ocean View Capital, Inc.
Reginald R. Smith (submitted), Houston, TX, for Viacom,
Inc. and Emerson Elec. Co.
David R. Cross (submitted), Quarles & Brady, Milwaukee,
WI, for Sumitomo Corp.
H. Peter Haveles, Jr. (submitted), Bruce Birenboim
(submitted), Cadwalader, Wickersham & Taft, New York City,
for Global Minerals and Metals Corp.
James H. R. Windels (submitted), Sarah Stasford (submitted),
Davis, Polk & Wardwell, New York City, for J.P. Morgan &
Co. Inc. and Morgan Guaranty Trust Co. of New York.
Celia Goldwag Barenholtz (submitted), Kronish, Lieb,
Weiner & Hellman, New York City, for Sumitomo Corp. of
America and Sumitomo Corp.
Steven Wolowitz (submitted), Mayer, Brown, Rowe & Maw,
New York City, for Credit Lyonnais Rouse, Ltd.
Albert A. Foer, American Antitrust Institute, Washington,
DC, John D. Bray, Washington, DC, Joseph P. Bauer, Notre
Dame Law School, Notre Dame, IN, Amicus Curiae American
Antitrust Institute, Viacom, Inc., Emerson Elec. Co. and
General Elec.
Before CUDAHY, ROVNER, and DIANE P. Woop, Circuit
Judges.
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DIANE P. WOOD, Circuit Judge.
These cases, which we have consolidated for purposes of this
opinion, all arise out of an alleged conspiracy in the 1990s to
fix the price of copper futures at artificially high levels on the
international exchange markets. This market manipulation
necessarily and directly inflated the price of the products
purchased by the plaintiffs, buyers of copper cathode, copper
rod, and scrap copper, who have sued for violations of the
Sherman Act, RICO, and various state laws. The district court
dismissed the claims of each of the plaintiffs either on the
ground that their claims were barred by the indirect purchaser
rule of Jilinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct.
2061, 52 L.Ed.2d 707 (1977), or on the ground that their
injuries were too remote and speculative under Associated
General Contractors of Call. Inc. v. California State Council of
Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723
(1983) (AGC). We find that J/linois Brick presents no obstacle
to any of the plaintiffs’ claims but that the claims of the scrap
copper dealers are’ precluded under AGC. On the other hand,
we conclude that the purchasers of copper cathode and rod have
suffered a direct and independent injury and are the best
situated participants in the physical copper market to bring a
lawsuit. We therefore affirm in part, reverse in part, and
remand in part for further proceedings.
i
A. The Parties
The production of copper entails a complicated four-step
process. First, copper producers extract ore from a copper mine
and crush or mill it into a gravel-like substance known as
concentrate. Second, smelters separate out the nonferrous
metals in the concentrate, producing one-meter square plates of
anode, which are approximately 90% copper. Next, the anode
is refined electrolytically to create sheets of cathode. Finally,
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the cathode is fed into a furnace at a mill and melted into rod or
wire. In the course of manufacturing cathode and rod, scrap
copper 1s also produced, and it too can be sold into the market.
The plaintiffs in these actions are large companies occupying
various positions along the copper production chain. The
plaintiffs in No. 01-3485, Viacom, Incorporated (a successor to
Westinghouse Electric Corporation) and Emerson Electric
Company, turn copper cathode into wire for resale to
merchants. Each purchased hundreds of millions of pounds of
cathode during the relevant time period from integrated
producers, who smelt and refine copper from their own mines
into cathode.
Ocean View Capital is the plaintiff in Nos. 01-3229 and
01-3230. Until it went out of business in 1996, it was a large
Rhode Island-based manufacturer of copper wire and cable.
Unlike Viacom and Emerson, Ocean View normally did not
purchase cathode; instead, it bought copper that had already
been transformed into rod. Some of this rod was manufactured
by integrated producers. Ocean View also contracted
frequently with semi-fabricators, which own and operate rod
mills but do not own mines, concentrators, smelters, or
refineries. Instead, semi-fabricators typically purchase cathode
from producers or copper traders and fabricate the cathode into
rod. On some occasions, Ocean View varied this process by
entering into tolling agreements with its semi-fabricators under
which it purchased its own cathode from producers or traders
and then paid the semi-fabricator to convert it into usable rod.
The plaintiffs in Loeb Industries v. Sumitomo, Nos. 00-3979
and 01-1148, are three scrap metal dealers (to whom we refer
as the “Scrap Dealers”). Each purchases only scrap copper;
none buys either cathode or rod. The scrap is purchased from
a variety of sources, including integrated producers and wire
manufacturers, and then repackaged and resold.
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B. The Copper Market
Despite the fact that copper is sold in a variety of physical
forms, the summary judgment record (viewed in the light most
favorable to the plaintiffs) indicates that the pricing of copper
is consistent throughout the industry. Like many other
commodities, copper is traded on commodities exchanges
through warrants and futures contracts. Most copper futures are
traded on either the London Metals Exchange (LME) or the
Commodities Exchange Division of the New York Mercantile
Exchange (known familiarly as the “Comex”). When futures
contracts mature, they must either be closed out by an offsetting
trade or satisfied by deliveries of the underlying physical goods.
If a futures trader is short, she must satisfy her obligation under
the futures contract by immediately delivering physical copper
cathode to an LME or Comex warehouse; if a trader is long,
she may similarly call in physical copper cathode from a
warehouse. Because of this, the price of physical copper,
including cathode, rod, and scrap copper, is directly linked to
the LME and Comex price for copper futures, and dealers in all
forms of physical copper quote prices based on rigid formulas
related to copper cathode futures.
While sales between six plaintiffs and numerous other copper
industry participants are involved, we will illustrate this linkage
by discussing only the relationship between one of the
plaintiffs, Viacom, and the largest integrated producer, Asarco.
Viacom entered into yearly supply contracts with Asarco,
copies of which are included in the record. In these contracts,
the price Viacom paid Asarco for cathode was made up of two
components. First, the base price was set by “the arithmetic
average of the COMEX first position settlements for high-grade
copper during the calendar month of scheduled shipment.”
From 1990 to 1996, this price fluctuated from about 75¢/Ib to
over $1.40/lb. Added to the base price was a “cathode
premium” that was set on a monthly or quarterly basis.
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Asarco’s premium fluctuated over the relevant time period
from 2.75¢/Ib to 3.5¢/lb. The record also indicates that when
the base price of copper increased, the premium tended to
increase as well.
Viacom bought over half a billion pounds of cathode from
Asarco. Asarco manufactured most of this cathode, but some
had been purchased for resale from other merchants to make up
for production shortfalls. Because records of these purchases
were not kept, it is impossible to tell whether any particular
pound of cathode sold to Viacom was manufactured by Asarco
or merely purchased for resale. The defendants concede,
however, that some of the cathode in question was being sold
into the market for the first time. While there is some dispute
as to the exact numbers, taking the evidence in the light most
favorable to Viacom, Asarco sold it 510 million pounds of
cathode over the relevant period. During this same time frame,
Asarco refined 6.4 billion pounds of cathode and purchased 153
million pounds from third parties. Therefore, even if one
assumed that every scrap of Asarco’s previously sold cathode
was shipped to Viacom (instead of to one of its many other
customers), Viacom still purchased 357 million pounds of
never-before-purchased cathode. Viacom seeks damages in this
suit only for cathode that was sold to it for the first time by its
integrated producers.
Asarco also purchased raw materials, such as concentrate and
anode, to supplement its own production and keep its smelters
and refineries running at full capacity. At least 27 million
pounds of the cathode Asarco shipped to Viacom consisted
entirely of Asarco raw materials, but the rest may well contain
some percentage of previously purchased materials. While raw
materials are often priced in reference to Comex prices, only
cathode is actually traded on the exchange. Raw material
prices also incorporate significant and widely varying discounts
based on both the cost of converting the materials into cathode
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and current refining and smelting capacity. Furthermore, the
defendants’ experts testified that while the prices of raw
materials “may be indirectly affected by the manipulations,” a
squeeze or corner on cathode could not directly harm the
purchasers of pre-cathode raw materials.
The pricing of rod and scrap are similar except that each
contains further premiums and discounts off the cathode futures
price to reflect a variety of additional costs. Rod pricing
contains an additional rod or shaping premium. Scrap copper
prices are affected by not only the price of cathode but also
freight costs, sizing, sorting, packaging, and purity
requirements.
Some of Viacom’s suppliers and customers engaged in
strategic hedging by purchasing “put” options on the futures
markets. A put option holder has the nght, but not the
obligation, to sell a futures contract at an established “strike”
price. If the market price is higher than the strike price
(because, for example, the price has been artificially raised), the
holder’s option will expire and its only cost will be the price of
the option. Asarco purchased put options to hedge its output,
but it did not hedge against specific transactions, by, for
example, purchasing a futures contract for each sale made to
Viacom. Its hedging activities were also limited to a fraction
of its supply. One of Viacom’s suppliers, Kennecott, did not
hedge at all, and Viacom itself never hedged its copper
purchases.
C. The Conspiracy
Defendant Sumitomo Corporation is a Japanese trading
corporation that attempted to fix and maintain the price of
copper at artificially high levels from September 1993 to June
1996, all with an eye to enriching itself in its capacity as a
seller of physical copper. Through a series of transactions with
defendant Global Minerals and Metals Corporation, a copper
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merchant, it hoarded vast supplies of physical copper for the
purpose of restricting supply, and it entered into paper
transactions in order to show a false increased demand for the
metal. In particular, Sumitomo established sham long-term
contracts that purportedly required it to purchase vast quantities
of copper from Global on a monthly basis over a period of three
years. These sham contracts enabled Sumitomo publicly to
justify its accumulation of excessive copper forward positions
as a hedge. By June 1995, Sumitomo held approximately ten
percent of the entire long position in Comex copper futures.
At that time, Sumitomo began to call in shorts to raise copper
demand to inflated levels and to reap the profits from its sales.
When these contracts came due, short futures traders were
forced to cover their positions by acquiring physical copper at
inflated prices, because no new copper was entering the
warehouses thanks to Sumitomo’s actions. These
manipulations caused the price of primary copper to rise more
than 50% over a two-year period. In June 1996, the scheme
was uncovered, and the trading price for copper dropped by a
third almost overnight. The prices of physical copper cathode,
rod, and scrap crashed comparably.
In 1998, the United States Commodities and Futures Trading
Commission (CFTC) determined that Sumitomo had violated
the Commodity Exchange Act by raising and fixing the price of
copper futures and reached a settiement with the company that
required it to pay a $150 million fine. That finding has
spawned a number of antitrust suits against the defendants,
including class action lawsuits on behalf of those who traded
copper futures and on behalf of certain purchasers of primary
copper. Sumitomo settled its suit with the futures traders for
approximately $134 million. The defendants have also settled
a California state court class action brought under various state
antitrust laws. Many of the plaintiffs’ sellers, including Asarco,
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participated in the lawsuit and received 0.15 cents per dollar of
copper purchased.
II. Proceedings in the District Court
These lawsuits were all consolidated in the Western District
of Wisconsin by the Judicial Panel on Multidistrict Litigation.
The defendants include not only Sumitomo and Global, but also
alleged co-conspirators Credit Lyonnais Rouse, Ltd. (CLR),
and J.P. Morgan and Morgan Guaranty Trust (which have since
merged to form JPMorgan Chase & Co. and to whom we refer
collectively as JPMorgan Chase). The plaintiffs in each case
sought damages for the allegedly inflated overcharge in the
price of the copper products they had purchased, which was
caused by Sumitomo’s actions. The Scrap Dealers also sought
certification of a class under fed. R. Civ. P. 23 consisting of all
metals dealers who purchased any form of physical copper in
commercial quantities between 1994 and 1996. The defendants
moved to dismiss each of the actions.
The district court first denied the motion to dismiss Ocean
View’s complaint on May 9, 2000. /n re Copper Antitrust
Litig., 98 F.Supp.2d 1039 (W.D.Wis.2000). The district court
found that if the facts alleged in the complaint were true, Ocean
View was a proper party to sue under the principles espoused
by this court in Sanner v. Board of Trade, 62 F.3d 918 (7th
Cir.1995). The court also denied a motion to dismiss Viacom’s
complaint on similar grounds. It allowed both cases to proceed,
but limited discovery to the issue of standing.
The court next examined the claim of the Scrap Dealers. It
denied their motion for class certification, fundamentally
because it concluded that the proposed named plaintiffs could
not sue, either for their own injuries or for those of others
similarly situated, because they fell within the ban on indirect
purchaser suits established by J/linois Brick, 431 U.S. at 720, 97
S.Ct. 2061. The court decided in addition that the proposed
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class would be unmanageable, because it would be impossible
to ascertain class membership. It then turned to the defendants’
12(b)(6) motion to dismiss. The court found that the Scrap
Dealers’ bare-bones allegations were sufficient to state a claim,
but that in light of deposition testimony and other facts adduced
during litigation of the class certification question, it would
nonetheless grant the motion based once again on the perceived
Illinois Brick flaw. The court did not, in so ruling, follow the
command of Rule 12(b)(6) to convert the motion to dismiss into
a motion for summary judgment under Rule 56, despite its
reliance on matters outside the complaint. The court also
dismissed the Scrap Dealers’ RICO allegations on the same
grounds.
Soon thereafter the district court granted JPMorgan Chase’s
motion to dismiss all claims that the Scrap Dealers had brought
against it on the ground that the plaintiffs were subject to
offensive issue preclusion on the pivotal question of their status
as indirect purchasers.
After discovery closed in the remaining cases, the defendants
filed for summary judgment. On July 23, 2001, the district
court granted summary judgment to all of the defendants on
Ocean View’s claims, finding that Ocean View had no right to
sue under the antitrust laws both because it was an indirect
purchaser (J/linois Brick) and because its injuries were too
remote (AGC ).
A month later, the district court granted summary judgment
to Global and CLR on Viacom’s claim. In contrast to its
conclusions in Loeb and Ocean View, the court here rejected
the argument that the claim was barred by Jilinois Brick.
Instead, it applied the factors set forth in AGC and determined
that a manipulation of the futures market would have effects too
“subtle and complex” to warrant recovery for these cathode
purchasers. The district court primarily relied on the following
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factors: (1) the huge number of exchange-based pricing
formulas available on Comex; (2) the various premiums and
discounts available in the industry; (3) potential duplication of
recovery due to purchases of cathode and raw materials by the
integrated producers who sold to Viacom; (4) potential
duplication of recovery due to hedging; and (5) the complexity
of the damages calculation. For similar reasons, the district
court also granted summary judgment to the defendants on
Viacom’s RICO claims. With the federal claims gone, it finally
dismissed Viacom’s state law claims without prejudice.
III. Use of Rule 12(b)(6)
Before turning to the important antitrust issues underlying all
of these appeals, we must deal with an issue of federal civil
procedure unique to the appeal of the Scrap Dealers. They
argue that the district court committed reversible error by
relying on outside materials in evaluating the motion to dismiss
without giving them notice and an opportunity to submit
additional materials. As they correctly point out, Rule 12(b)
requires that if the district court wishes to consider material
outside the pleadings in ruling on a motion to dismiss, it must
treat the motion as one for summary judgment and provide each
party notice and an opportunity to submit affidavits or other
additional forms of proof. Fleischfresser v. Directors of School
Dist. 200, 15 F.3d 680, 684 (7th Cir.1994). This requirement
of a reasonable opportunity to respond is mandatory, not
discretionary. Edward Gray Corp. v. National Union Fire Ins.
Co., 94 F.3d 363, 366 (7th Cir.1996).
In this case, the district court stated that, considering only the
bare pleadings, it would find that the Scrap Dealers had stated
a claim. Notwithstanding this conclusion, relying on the
materials and affidavits produced for the earlier class
certification hearing, it instead granted the defendants’ motion
dismissing the case. We agree with the Scrap Dealer: that this
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was error, and that the district court should have given them
notice of its intentions and an opportunity to respond and
produce additional facts going beyond whatever might have
been appropriate for class certification purposes.
The question, however, is what the consequence of this error
should be. The Scrap Dealers assume that reversal should be
automatic, but this position overlooks the command of 28
U.S.C. § 2111, which directs appellate courts to apply the
harmless error rule to anything that does not affect the
“substantial rights of the parties.” We are not aware of any
case that holds that the command of Rule 12(b)(6) to convert a
motion to dismiss into a summary judgment motion is
somehow exempt from § 2111. The question for us is therefore
whether the district court’s error affected the Scrap Dealers’
substantial rights.
To answer that question, we must consider whether the Scrap
Dealers have shown us any evidence raising a question of
material fact that they would have submitted to the district
court had they been given proper notice of the de facto
conversion. Burick v. Edward Rose & Sons, 18 F.3d 5 14, 516
(7th Cir.1994). If there are no potential disputed material
issues of fact, then the court’s reliance on materials outside the
pleadings is not by itself ground for reversal despite the failure
to follow appropriate procedures. Ribando v. United Airlines,
Inc., 200 F.3d 507, 510 (7th Cir.1999). Here, the dispute over
whether the Scrap Dealers were proper plaintiffs to sue under
the antitrust laws was a hard-fought issue in the class
certification hearings, and the Scrap Dealers devoted substantial
portions of both their reply brief and supplemental brief to the
issue. Furthermore, the district court provided an after-the-fact
opportunity to the Scrap Dealers to bring additional materials
to its attention in the subsequent litigation against JPMorgan
Chase. See Edward Gray Corp., 94 F.3d at 366 (reversing
where plaintiff had no opportunity to submit materials that did
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create a factual dispute). In light of these facts, we are
confident that the Scrap Dealers had a full opportunity to bring
all material factual disputes to the court’s attention. Therefore,
we will review dismissal of all of these actions, as we would
any other ruling on summary judgment, drawing all disputed or
potentially disputed factual inferences in favor of the plaintiffs
and deciding de novo whether the defendants were entitled to
judgment on the law. Simmons v. Chicago Bd. of Educ., 289
F.3d 488, 491 (7th Cir.2002).
The Scrap Dealers also contend as a threshold matter that the
district court’s reliance on materials submitted for the class
certification hearing to rule against them on summary judgment
violates the dictates of Eisen v. Carlisle & Jacquelin, 417 U.S.
156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). This over-reads
Eisen, in our opinion. Eisen merely indicates that a court may
not refuse to certify a class on the ground that it thinks the class
will eventually lose on the merits. Jd. at 177-78, 94 S.Ct. 2140;
see also Szabo v. Bridgeport Mach., Inc., 249 F.3d 672, 677
(7th Cir.2001). It says nothing about whether courts may use
evidence produced at a prior class certification hearing for other
purposes, including for a decision on summary judgment. We
see no reason why these affidavits should be treated any
differently from other parts of the record which may be
considered in later rulings. See Kochlacs v. Local Bd. No. 92,
476 F.2d 557, 558 n. 1 (7th Cir.1973). We may therefore rely
on the materials and affidavits submitted at the class
certification hearing in determining whether the district court’s
decision to grant the defendants’ motion in the Scrap Dealers’
action was correct.
IV. Illinois Brick
While the Clayton Act permits civil suits by “any person who
shall be injured in his business or property,” 15 U.S.C. § 4,
courts have long acknowledged that not every person, however
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tangentially injured by an antitrust violator, may recover treble
damages. Blue Shield of Va. v. McCready, 457 U.S. 465, 477,
102 S.Ct. 2540, 73 L-Ed.2d 149 (1982). Numerous doctrines
have arisen to clarify the circumstances under which a
particular person may recover from an antitrust violator. At
times these doctrines are rather incautiously lumped together
under the umbrella term of “antitrust standing.” However, the
Supreme Court has generally been careful to limit the actual
question of standing to the simple inquiry of whether a plaintiff
has suffered a redressable injury in fact, entitling the federal
courts to hear such a “case or controversy” under Article III.
See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112
S.Ct. 2130, 119 L.Ed.2d 351 ( 1992). There is no dispute that
the plaintiffs in these cases have been injured by paying an
inflated price for copper; their Article II] standing is therefore
secure. The difficult question is Statutory, because the Sherman
Act has additional rules for determining “whether the plaintiff
is the proper party to bring a private antitrust action.” AGC,
459 US. at 535 n. 31, 103 S.Ct. 897. For example, the injury
must be an “antitrust injury” caused by anti- competitive
behavior as opposed to mere economic loss. Brunswick v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-89, 97 S.Ct. 690,
50 L.Ed.2d 701 (1977). Two other limitations on which parties
may bring suit for antitrust violations are central here: the
proximate cause requirements of A GC, 459 US. at 544-45, 103
S.Ct. 897, and the direct purchaser mule of Jl/inois Brick, 431
U.S. at 729-30, 97 S.Ct. 2061.
Illinois Brick holds that the direct purchaser from the alleged
antitrust violator(s) is the one with the right of action; those
further removed from the illegal arrangement may not (under
the federal antitrust laws, at least) bring their own actions. 431
U.S. at 729, 97 S.Ct. 2061. In Illinois. Brick itself, the
defendants were companies who sold bricks to masonry
contractors at allegedly inflated prices. The contractors in tum
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allegedly “passed on” those overcharges to the plaintiffs who
purchased their constructed buildings. /d. at 726, 97 S.Ct.
2061. In an earlier decision, Hanover Shoe, Inc. v. United Shoe
Mach. Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231
(1968), the Supreme Court had decided that defendants could
not escape liability on the ground that the plaintiff had passed
on the anticompetitive overcharge. By parity of reasoning, the
Court decided in J/linois Brick that the persons authorized to
sue under the antitrust laws in this type of case were the direct
purchasers. Hence, the contractors were permitted to sue and
recover in full for the price inflation, including any “pass-on.”
Illinois Brick does not stand for the proposition, as the
defendants would seem to have it, that a defendant cannot be
sued under the antitrust laws by any plaintiff to whom it does
not sell (or from whom it does not purchase). Such a rule would
eliminate in one fell swoop all competitor suits based on
exclusionary practices--a step that some antitrust theorists have
urged, but a step that the Supreme Court has never taken. To
the contrary, the Court has made it clear that it does not read
Illinois Brick so broadly. For instance, the plaintiff in
McCready, who purchased the defendant’s health services from
her employer, alleged that a conspiracy between the defendant
and psychiatrists increased her costs for visiting a psychologist.
457 U.S. at 468-70, 102 S.Ct. 2540. The defendant contended }
that after ///inois Brick only the employer who purchased the .
health plan should be permitted to sue, but the Court disagreed. :
It held that the chain-of-distribution inquiry in Jilinois Brick |
was meant only to preclude duplicate recovery. While the
employer might have suffered some economic injury (through, |
for example, paying higher wages to attract skilled workers in
order to compensate for the illegally inferior benefits), its harm
was distinct from the plaintiffs injury, her own out-of-pocket
payments for psychological services. Jd. at 475, 102 S.Ct. :
2540.
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While it is not identical to this case, McCready is helpful
insofar as it recognizes that different injuries in distinct markets
may be inflicted by a single antitrust conspiracy, and thus that
differently situated plaintiffs might be able to raise claims. The
injuries suffered by the copper traders who purchased inflated
futures contracts from the defendants are distinct from any
harm inflicted on Viacom when it paid inflated cash prices for
cathode, or on Ocean View, to the extent it purchased copper
rod from integrated producers. Other cases also demonstrate
that the Supreme Court has been willing to entertain suits
between plaintiffs and defendants not in privity with each other.
Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S.
492, 108 S.Ct. 1931, 100 L.Ed.2d 497 (1988) (plastic conduit
manufacturer suing competitor steel conduit manufacturer);
National Collegiate Athletic Ass'n v. Board of Regents, 468
U.S. 85, 104S.Ct. 2948, 82 L.Ed.2d 70 (1984) (university suing
association that prohibited it from entering a television
contract); Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S.
207,79 S.Ct. 705, 3 L.Ed.2d 741 (1959) (store suing competitor
over refusal to deal).
The reason the plaintiffs’ suit in I/linois Brick failed was not
because the defendants did not sell to them. Rather, it was
because the defendants did sell to a third party who (after
Hanover Shoe) could recover for any injury they claimed. The
Same paradigm applies in all of the cases cited by the
defendants: Party A, the antitrust violator, sells to Party B, and
then Party C, a down-stream purchaser from B, seeks to recover
the implicit overcharges that B passed on to C. See, e.g.,
Kansas v. UtiliCorp United, Inc., 497 U.S. 199, 207, 110 S.Ct.
2807, 111 L.Ed.2d 169 (1990) (public utilities but not
residential customers to whom they sell may sue natural gas
companies); Jn re Brand Name Prescription Drugs Antitrust
Litig., 123 F.3d 599, 606 (7th Cir.1997) (drug wholesalers but
not retail pharmacies to whom they sell may recover from
18a
manufacturers); McCarthy v. Recordex Serv., Inc., 80 F.3d
842, 852-54 (3d Cir.1996) (attorneys may recover overcharges
for copies, but the clients to whom they offer services may not);
In re Beef Indus. Antitrust Litig., 710 F.2d 216, 218 (Sth
Cir.1983) (packers who sell to grocers may recover for their
unlawful conduct but feeders who sell to packers may not).
Here, in contrast, the plaintiffs are not indirect purchasers
along a supply chain. As far as the plaintiffs’ claims are
concerned, Global, CLR, and Sumitomo did not sell cathode to
integrated producers who in turn sold to any of the plaintiffs.
Instead, the alleged conspiracy operated in the separate but
related futures market, through which it sought directly to
manipulate the price of copper the plaintiffs were buying. (It
is true that Sumitomo Corporation made some sales of cathode,
primarily overseas, to reap the benefit of its illegal futures
market scheme. None of the plaintiffs, however, is seeking
recovery on the basis of any of these cash market sales; all rest
solely on the manipulation of sales of futures contracts. Sanner
v. Board of Trade, 62 F.3d 918, 929 (7th Cir.1995), discussed
below, recognizes such a theory, and we see no reason why the
mere existence of separate independent physical transactions
should in any way change the analysis.)
The defendants repeatedly urge that the availability of
recovery for copper futures traders who bought and sold from
the defendants in that market should bar recovery for any
plaintiff in the cash market. But this kind of an absolutist
approach is ruled out by Sanner, which recognized at least one
situation in which the futures market and physical market must
be evaluated separately. The serious question here is whether
these plaintiffs have presented another such instance.
In Sanner, a group of soybean farmers sued the Chicago
Board of Trade alleging that the Board conspired with several
individuals artificially to lower the price of soybean futures.
ajeitiabone gore tee
19a
The farmers suffered damages when they were forced to sell
their soybeans into the cash market at correspondingly low
prices. Jd. at 921. The district court granted a motion to
dismiss, finding as a matter of law that the farmers’ injuries
were indirect because the farmers did not participate in the
futures market, that the causal chain between the cash and
futures prices was too attenuated, and that damages were too
speculative. Jd. at 926.
This court reversed the dismissal. On the assumption (given
the procedural posture of the case) that the farmers’ allegations
about the relation between the cash and futures markets were
true, and that those market prices “tend[ed] to move in
lockstep,” we determined that the farmers had suffered
sufficiently direct injuries from the conspiracy to proceed with
their case. Jd. at 929-30. We rejected the proposition that
“participants in the futures market were more directly injured,”
SO as to preclude recovery by farmers in the cash market and
denied the defendants’ claim that we should assume at the
motion to dismiss stage that damages would be too speculative.
Id. at 931. From the perspective of Illinois Brick, the Sanner
court expressly found that in the context of a market
manipulation scheme, damages inflicted on the physical
commodity market were not derivative of injuries in the futures
market. Unlike J/linois Brick, the harms incurred in the physical
market during a market manipulation are not “secondary
consequences arising from an injury to a third party.” Jd. at
929. Instead, they form a separate and compensable injury.
The defendants’ reading of J/linois Brick is inconsistent with
Sanner. Their claims to the contrary, there is no indication in
Sanner that the plaintiff soybean farmers were in privity with
the Board of Trade, and as a factual matter the assertion is
surely wrong. The Board and its members did not sell soybeans
to the farmers; like the defendants here they dealt solely with
futures contracts. If J/linois Brick bars all recovery here, it
20a
should have barred recovery in Sanner and should also bar
recovery in group boycott and other restraint of trade settings.
To put it another way, Hanover Shoe, Illinois Brick, and
McCready make plain that the antitrust laws create a system
that, to the extent possible, permits recovery in rough
proportion to the actual harm a defendant’s unlawful conduct
causes in the market without complex damage apportionment.
This scheme at times favors plaintiffs (Hanover Shoe) and at
times defendants (J//inois Brick), but it never operates entirely
to preclude market recovery for an injury. Applying those
principles and the decision in Sanner to this case, we conclude
that the evidence viewed favorably to the plaintiffs shows that
damage from the defendants’ conduct was felt in two separate
markets: the futures market and the physical copper market.”™”
The fact that the defendants were hoping to profit in the
physical market, ultimately, through their manipulation of the
separate futures market, also has implications for their arguments
related to the so-called “umbrella standing” theory. The defendants
object to the possibility that they might be held responsible for higher
copper prices throughout the physical market, rather than just for the
sales they made. If this were an ordinary cartel case, in which cartel
members A and B sell to customers X and Y, and then non-cartel
member firm C makes sales at or near the enhanced cartel price to
customer Z, the question arises whether A and B are liable to Z for
the overcharges it paid. See generally, ABA Section of Antitrust
Law, | Antitrust Developments (Fourth) at 778-79 & n. 128 (1997)
(collecting cases on umbrella standing). Here, however, we have a
conspiracy to rig prices for the entire physical market, accomplished
through manipulation of the Comex futures market. Another possible
analogy might be to rigging product standards, which affects
everyone who tries to participate in a particular product market. In
the latter case, the defendants who manipulated the standards cannot
be heard to complain that they should be immune from damages for
a product they did not sell. We leave this issue open for further
exploration at the district court level, now that we have clarified how
lll L,.,.,lhl lll
2la
We have identified those who may recover in the futures
market and must now turn to the more difficult question of
establishing the proper plaintiff in the physical market. The
defendants’ answer (nobody) is not supported by Jilinois
Brick--or economics or fairness for that matter. Instead, we
must be guided in our inquiry by the analytical framework and
factors set out in AGC.
V. Associated General Contractors
AGC requires a court to examine through a case-by-case
analysis the link between a plaintiff's harm and a defendant’s
wrongdoing. 459 U.S. at 535-36, 103 S.Ct. 897. We are to
consider a number of factors in this analysis, notably (1) the
causal connection between the violation and the harm; (2) the
presence of improper motive; (3) the type of injury and
whether it was one Congress sought to redress; (4) the
directness of the injury; (5) the speculative nature of the
damages; and (6) the risk of duplicate recovery or complex
damage apportionment. Jd. at 537-45, 103 S.Ct. 897; Sanner,
62 F.3d at 927. The defendants concede only the second factor:
they admit that each of the plaintiffs has adduced evidence
sufficient to survive summary judgment that they intended
: artificially to inflate the price of both copper futures and
| physical copper in order to reap millions of dollars in profits.
| They contest each of the other points.
The first and third factors are discussed only cursorily by the
defendants and can be dealt with adequately in the course of
our analysis of the remaining three. For example, the
defendants claim that there is no causal connection between
their actions and any of the plaintiffs’ harms because the
plaintiffs’ injuries are indirect (the fourth factor), and they
the direct purchaser rule and the remoteness doctrine of A GC apply
here.
22a
argue that Congress had no intention of redressing this sort of
injury because it is indirect and speculative (the fifth factor).
We therefore devote our attention to the other three factors,
considering in the case of each plaintiff whether its injury was
indirect and unpredictable, risked duplicate recovery, and
would lead to speculative and complex damage apportionment.
We begin with the claims of the Scrap Dealers.
A. Scrap Dealers (Loeb, Nos. 00-3979, 01-1148)
The Scrap Dealers face problems with all three of the
contested AGC factors. First, whether or not they were in some
sense original purchasers of physical copper, that fact alone is
not enough to establish that their injury flowed directly from
the defendants’ market manipulations. An injury is still
indirect if a plaintiff fails to establish a chain of causation
between the harm it has suffered and the defendant’s wrongful
acts. AGC, 459 U.S. at 541, 103 S.Ct. 897. The directness
inquiry further focuses on the presence of more immediate
victims of an antitrust violation in a better position to maintain
a treble damages action. “The existence of an identifiable class
of persons whose self-interest would normally motivate them
to vindicate the public interest in antitrust enforcement
diminishes the justification for allowing a more remote party ...
to perform the office of a private attorney general.” /d. at 542,
103 S.Ct. 897.
There are numerous other parties who have suffered more
direct injuries at the hands of the defendants than the Scrap
Dealers suing here. Among them (though as we explain below
not limited to them) are the Comex copper futures traders who
have already filed and settled their claims with the defendants.
But even in the physical copper market itself, the Scrap Dealers
are quintessential examples of indirect victims of antitrust
injury. Although the copper distribution chain is exceedingly
complex, even in the simplest possible version, an integrated
23a
producer such as Asarco will refine copper into cathode and sell
it to a manufacturer, such as Viacom, Emerson, or Ocean View.
The manufacturer will in turn transform the cathode into some
product using copper and sell it down to the retail level. In the
process, it may generate unused scrap Copper, at which point
the Scrap Dealers finally appear on the scene to buy the scrap.
It is for these last purchases that the plaintiffs seek to recover
damages. But distributors and manufacturers have already
entered into monetary transactions involving this same copper,
and indeed we are faced in this very case with suits filed by
some of those manufacturers. It is apparent that these
companies at the least have suffered more direct injuries than
the Scrap Dealer plaintiffs. This stands in marked contrast to
Sanner, where the soybean farmers were clearly the most
directly injured Participants in the cash market because they
were the only cash sellers of soybeans. Sanner, 62 F.3d at 927.
The speculative nature of the damages the Scrap Dealers
have suffered also supports our conclusion that they cannot
maintain this action. See id. at 542-43, 103 S.Ct. 897 (denying
a claim that rested on an “abstract conception or speculative
measure of harm”). The Scrap Dealers’ economic experts have
Stated that they can tie a rise in the price of copper futures
directly to price increases for physical copper through
econometric analysis. Defendants argue to the contrary that a
host of other factors are also at play, destroying the closeness
of any link. Even accepting the Scrap Dealers’ position on this
point, as we must at this Stage of the litigation, it is difficult to
know whether they have suffered any economic loss at all as a
result of the defendants’ actions. After all, the Scrap Dealers,
middlemen who resell their Scrap copper soon after they
purchase it, are alleging that the defendants’ market
manipulations caused the price of copper to increase steadily
from 1994 to 1996. Therefore, on most or all the Sales the
Scrap Dealers made in that time frame, which they contend are
24a
inflexibly linked to prevailing Comex prices, they should have
made a slight profit because of Sumitomo’s actions. Only
when the price of copper plummeted in June 1996 would the
Scrap Dealers have taken a bath in the resale market. And
depending on how much copper the Scrap Dealers had on hand
as compared to the number of transactions they made as the
price of copper was increasing, it is possible that some of them
may have suffered no true economic loss at all. In short, the
exact nature of the damages they have suffered is speculative.
The Scrap Dealers attempt to counter this problem by arguing
that damages can be set simply by computing the difference
between the price of copper that should have prevailed on a
given day absent Sumitomo’s manipulations and the actual
price for every copper transaction. This assertion, however,
plunges the Scrap Dealers headlong into conflict with the sixth
AGC factor, the problems of duplicate damage recovery and
complex damage apportionment. The Scrap Dealers argue that
they--and all other commercial purchasers of physical
copper--should be permitted to recover damages equal to three
times the overcharge caused by Sumitomo’s scheme for every
single sale of copper in the mid-1990s. But this proposition
ignores the fact that the same piece of physical copper may be
resold many times in a given year as it is refined, distributed,
turned into scrap, sold between scrap dealers, re-refined, and
sold for scrap again. As mentioned above, every time a scrap
dealer resold scrap copper during the two years at issue, it
recouped the vast majority of its losses. Since defendants are
not permitted to mount any sort of cost recovery defense along
these lines, see Hanover Shoe, 392 U.S. at 491-94, 88 S.Ct.
2224, this would cause the Scrap Dealers to receive a damages
award far in excess of any economic loss the defendants caused
them. While Sanner permitted farmers to recover their soybean
losses, it did not let millers, wholesalers, or retailers of
soybeans also assert claims. It would be a significant extension
25a
of Sanner to allow these plaintiffs to sue, and it is one we
decline to make.
The Scrap Dealers repeatedly argue that there are no
duplicate damages in this case because their pricing decisions
are based exclusively on Comex prices rather than a pass-on of
historical costs. We fail to see why this fact should lead us to
ignore the Supreme Court’s command to prevent the duplicate
recovery of antitrust injuries wherever possible. AGC, 459 U.S.
at 544, 103 S.Ct. 897; Greater Rockford Energy & Tech. Corp.
v. Shell Oil Co., 998 F.2d 391, 396 (7th Cir.1993). The Scrap
Dealers’ contention that absent a pass-on of historical costs
their injuries are “separate and distinct” defies economic
reality. If a scrap dealer purchased a ton of copper when the
Comex price was artificially inflated by $400, and the price
subsequently rose another $200 prior to resale, it has reaped a
$200 gain, not a $400 loss. The Scrap Dealers’ own witnesses
admitted that there is no pass-on only “if the current Comex
price has moved in an adverse direction.” Yet the evidence
shows that Sumitomo’s actions caused the Comex price to rise
throughout the period at issue in this case, making us skeptical
that the Scrap Dealers have suffered any real loss at all.
The fact that the Scrap Dealers here are further down the
chain of copper users than others also will increase the
economic complexity of apportioning damages. Even the
marketing manager of Loeb admitted that such factors as
“freight costs, the sizing, sorting, packaging, purity
requirements, length of time it took to get paid, [and] the risk
of getting paid” all factored into Loeb’s pricing decisions.
While it might be possible for economists to factor out each of
these considerations for all prior sales involving copper, the
Supreme Court has decreed a simpler solution: simply restrict
the right to recover to those who are more directly affected by
the defendants’ actions. UtiliCorp, 497 U.S. at 208-1 1,110
S.Ct. 2807 (noting policy rationales for denying recovery even
26a
to those plaintiffs whose damages could be easily calculated).
This description applies fully to the plaintiffs here. Because the
Scrap Dealers have suffered an indirect injury causing them at
best speculative damages that would lead to a strong possibility
of duplicative recovery, we agree with the district court that
they may not pursue their claims.
B. Viacom and Emerson (No. 01-3485)
l.
Many of the successful arguments from Loeb are echoed by
the defendants in the Viacom action, but after a careful review
of the record we find that the facts of the latter case compel a
different result. The defendants’ first argument for denying
recovery to Viacom and Emerson (to whom we will refer as
“Viacom” except when distinctions between the two companies
are important) is that Viacom has shown no evidence of direct
and predictable harm stemming from the defendants’ conduct.
As we stated earlier, directness relates to the question whether
there exists a chain of causation between a defendant’s action
and a plaintiffs injury or (in contrast) if the connection is based
instead only on “somewhat vaguely defined links.” AGC, 459
U.S. at 540, 103 S.Ct. 897. Global and CLR, the only
defendants remaining in the Viacom action after Sumitomo’s
settlement, begin their attack by pointing out that the prices of
copper cathode on the LME and Comex often diverged. We
fail to see why this matters. Sumitomo purchased futures on
Comex to drive up the price on that particular exchange
artificially, and the prices Viacom paid for copper were directly
based on Comex prices. The fact that Sumitomo also bought
and sold futures on the LME and may have caused additional
harms to physical copper purchasers who based their decisions
on LME prices has no impact on Viacom’s ability to recover
under the AGC factors.
27a
Next, the defendants rely on the fact that Viacom’s purchases
included not only a price linked to Comex but “a variety of
discounts or premiums that, in response to changes in supply
and demand, varied over time and among suppliers.” The
defendants’ experts have opined that, through adjustments of
premiums in response to supply and demand factors, the actual
impact on the physical copper market of their illegal futures
market activities is likely to be indirect and unpredictable.
While all of this might be so as a theoretical matter, on
summary judgment it is our duty to evaluate the evidence in the
record that Viacom presented. And that evidence paints a
starkly different picture. Viacom has introduced into the record
both its contracts and its suppliers’ published premiums. After
a careful review of these materials, we are convinced that
Viacom has established direct injury. In its contracts, Viacom
purchased all but a de minimis amount of copper through the
two-part formula we described earlier, consisting of (1) a base
price equal to the Comex first position copper settlement price,
and (2) a cathode premium, negotiated on a’ monthly or
quarterly basis. Over the six years at issue here, the settlement
price fluctuated from about 75¢ to $1.40 per pound. During the
Same years, the premium ranged from 2.75 to 3.50¢/Ib.
(Viacom does not seek recovery based on changes in premium
prices; the complaint is based only on those caused by
variations in the base price.)
The district court ruled that the base price and cathode
premium were “inseparable.” After a careful review of the
record in the light most favorable to the plaintiffs, we are
unable to agree with this characterization. All of the contracts
specify that the payment price is determined by adding these
two separately described components, and the values of both
numbers throughout the relevant time period should be
available through discovery. The district court also seems to
have thought that the premium could in some cases be a
28a
discount off the Comex price. There is no evidence to support
this; to the contrary, all of the evidence, including defendants’
counsels’ concession at oral argument, indicates that the
premium was always a positive number. While Viacom
appears to have been awarded volume and cash payment
discounts in some instances, there is no indication that these
discounts were tied to market conditions, and the defendants do
not focus on such discounts in their briefs. Furthermore, the
cathode premium was a small fraction of the Comex price. In
fact, the evidence shows that as the Comex price increased, the
premium also increased. Thus, there is no possibility that the
two components “offset” or that the premium somehow
compensated for the defendants’ manipulated price inflation.
(Even if, counter- factually, the Comexprice had for example
risen by 65¢ and, to compensate, the base price dropped a
penny, this could at best represent a mitigation of damages.
But this would not make the injury any less direct.)
The district court’s conclusion on this point, which relied
mainly on the testimony of an expert who had not even looked
at Viacom’s contracts, is both factually mistaken and fails to
take the evidence in the light most favorable to Viacom. The
presence of a small cathode premium does not negate the fact
that the prices of cathode and cathode futures “tend to move in
lockstep.” Instead, the price reference in Viacom’s contracts
supports just such lockstep linkage. Our case law has never
required that the cash and futures prices be identical to support
recovery. It is only necessary that the relationship be direct, as
itis here. See Sanner, 62 F.3d at 929.
Furthermore, the experts note that Comex quotes 24 different
exchange prices at any given time and that the defendants’
actions could have affected each of those prices differently.
Accepting the truth of this statement, we do not see why it
compels a finding that Viacom’s injury is indirect. According
to the record evidence, out of this menu of prices, Viacom used
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29a
just one (the monthly settlement price) as the basis for all but
a minuscule number of its contract purchases, and Emerson
used only two. While acknowledging this, the defendants
contend that other cathode purchasers could have used different
or widely varying systems. Perhaps they did, and if so perhaps
they should be found to be improper plaintiffs under the
antitrust laws, though that is an issue for another day. But this
fact does not weaken the direct causal chain between the
defendants’ actions and these particular plaintiffs’ harm and is
no more reason to deny Viacom and Emerson recovery than the
fact that some purchasers might have bought cathode at prices
not tied to those on either Comex or the LME.
Similarly, we reject the defendants’ argument that because a
number of Viacom’s contracts contained clauses permitting the
parties to renegotiate the base price if they believed that Comex
prices did not accurately reflect market conditions, Viacom’s
injuries are somehow remote and indirect. It is undisputed that,
because of the success of the defendants’ conspiracy, Viacom
and its integrated suppliers were never aware of the artificial
Comex inflation and so never took advantage of this clause.
Instead, Viacom based all of the purchases for which it seeks
recovery directly on Comex.
We also believe that, contrary to the defendants’ contentions,
our holding on this point is entirely consistent with the Second
Circuit’s decision in Reading Indus., Inc. v. Kennecott Copper
Corp., 631 F.2d 10, 13-14 (2d Cir.1980). There, the plaintiff,
a refiner of scrap copper, alleged that the defendant-integrated
producers had conspired to keep the price of refined copper low
and that this conspiracy injured it by artificially raising the
price of scrap. Jd. at 12. The court found the injury indirect
because it “depend[ed] upon a complicated series of market
interactions,” including the actions and pricing decisions-of
refiners, fabricators, dealers, speculators, and consumers of
copper. Jd. at 13. Such “conjectural theories of injury and
30a
attenuated economic causality’ were enough to render
Reading’s injury indirect. Jd. at 14.
Other than the fact that both Reading and the present case
involve price-fixing conspiracies in the physical copper market,
we find little similarity between them. The injury here does not
depend on the speculative actions of innumerable market
decision makers. It flows instead directly from the contracts
between Viacom and its suppliers. It is this contractual linkage,
absent in Reading, that prevents other market variables from
miring a trier of fact here in “intricate efforts to recreate the
possible permutations in the causes and effects of a price
change.” Id.
In sum, Viacom’s contracts and the other record evidence
establish a direct relation between the defendants’ illegal
scheme and Viacom’s harm. The contract price it paid its
suppliers for copper was directly and explicitly based on the
Comex monthly settlement price, and therefore the defendants’
manipulations directly and predictably had an impact on that
price. Amarel v. Connell, 102 F.3d 1494, 1512 (9th Cir.1997)
(injury direct where price of milled rice directly affected price
of paddy rice); Sanner, 62 F.3d at 929. Any variations in the
cathode premium moved in the same direction as the
manipulation and could not have limited or mitigated this harm.
For these reasons, Viacom has established the directness
element of AGC.
2.
We turn next to the district court’s other major reason for
granting the defendants summary judgment: its belief that
opening the door to Viacom’s suit would inevitably lead to
either duplicate recovery or complex damage apportionment.
See AGC, 459 US. at 544, 103 S.Ct. 897. The court cited at
least three manifestations of this problem, all involving
Viacom’s integrated suppliers, such as Asarco. First, it
3la
believed that Viacom’s claim would duplicate Asarco’s because
Asarco could assert claims for its raw material purchases from
third parties, and those raw material prices are tied to Comex.
Second, because Asarco purchased some cathode from third
parties, both it and Viacom would be permitted to recover and
duplicate each other’s damages. Third, Viacom’s claim would
duplicate Asarco’s because Asarco hedged by purchasing put
options on Comex. In addition to those three points, the court
noted that Asarco has recovered damages in a California state
court class action, and it thought that this too should preclude
Viacom from recovering.
We begin with the defendants’ claim that Asarco’s purchase
of raw materials, such as ore, concentrate, blister, and anode, all
of which it transformed into cathode, should bar recovery. This
does not follow. Practically every product is created through
the use of some kind of raw materials, but that fact does not
prevent the direct purchaser of the finished product from suing
its manufacturer under the antitrust laws, as long as the direct
purchaser is not trying to attack a price-fixing arrangement at
the raw materials level. The defendants’ own experts testified
that while raw material prices “may be indirectly affected” by
price manipulations, a squeeze or corner on cathode-- the only
copper product traded on Comex and the LME--would not
directly harm purchasers of these raw materials. Instead, raw
material prices vary widely and contain various discounts off
the Comex price to account for such factors as the expected
cost of conversion into cathode, which in turn varies based on
supply, demand, and current refining and smelting capacity.
We agree with the broad proposition that a party cannot
recover when others more directly injured are better able to
state a claim. AGC, 459 U.S. at 544-45, 103 S.Ct. 897. Indeed,
we have just applied this very principle to deny recovery to the
crap Dealers, who are farther down the chain of resale, even
though scrap prices too are tied to Comex. For parallel reasons,
32a
raw materials purchasers are also ill-suited to bring an antitrust
claim. Permitting both raw materials purchasers and cathode
purchasers in the same line of distribution to recover would
lead to duplicate damages in violation of the ///inois Brick rule.
The solution to this problem, however, is not to deny a nght to
recover to everyone.
Such a draconian rule would give a green light to antitrust
scofflaws to conspire to fix prices in a particular market and
would create incentives to engage in antitrust conspiracies in
markets with complicated distribution structures. Instead, the
proper course is to recognize only the best of the several
potential plaintiffs who otherwise satisfy the requirements for
bringing suit under the antitrust laws. Because raw materials
prices will vary in comparison to Comex prices much more
than will the price of physical cathode, physical cathode
purchasers such as Viacom are better situated than raw
materials purchasers to pursue a claim in the physical market.
This logically implies that raw materials purchasers up the
chain from cathode sales could not satisfy AGC, just as we
found to be the case for the downstream Scrap Dealers. In
between, however, lies the physical market transaction at the
heart of the defendants’ scheme--the purchase of cathode.
There are no better parties than these purchasers to pursue a
claim, and it is therefore they who are proper plaintiffs.
More bite lies in the argument that recovery should be denied
because some of the cathode Asarco sold Viacom was
purchased before, although this claim is not as strong as it
might at first appear. As the district court noted, some if not
most of the cathode Viacom purchased had never before been
purchased in cathode form. Asarco sold Viacom 510 million
pounds of cathode between 1990 and 1996. During that time
frame, Asarco refined 6.4 billion pounds of cathode and
purchased 153 million pounds from third parties, about 2.3% of
its output. Because copper is fungible, one cannot tell whether
33a
any given Viacom purchase of cathode consisted of cathode
refined by Asarco or previously purchased product.
We do not believe the mere existence of third-party cathode
presents such a risk of duplicate recovery as to justify the
extreme step of denying recovery altogether. Had the Board of
Trade in Sanner produced evidence that farmers on some rare
occasions bought soybeans from neighboring farms and then
resold them along with the soybeans they grew themselves, that
would not have provided a reason to deny recovery entirely.
Similarly, if Viacom can prove at trial that 97.7% of all copper
Asarco sold it was cathode it had refined itself, then Viacom
should be permitted to recover 97.7% of its proved damages
from cathode purchases. Cf Paper Sys., Inc. v. Nippon Paper
Indus. Co., 281 F.3d 629, 633 (7th Cir.2002) (carving out
indirect purchases while still leaving open possibility of
recovery for direct purchases). The physical copper market is
complicated, but not so complicated that one cannot estimate to
a reasonable degree of accuracy the amount of damage a party
has sustained. It is certainly acceptable through expert
economic testimony to make a reasonable estimation of actual
damages through probability and inferences. See Zenith Radio
Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 124, 89 S.Ct.
1562, 23 L.Ed.2d 129 (1969). “Where the tort itself is of such
a nature as to preclude the ascertainment of the amount of
damages with certainty it would be a perversion of fundamental
principles of justice to deny all relief to the injured person.”
Story Parchment Co. v. Paterson Parchment Paper Co., 282
U.S. 555, 563, 51 S.Ct. 248, 75 L.Ed. 544 (193 1). While we are
not permitted to make complex damage apportionments in
antitrust cases, AGC, 459 U.S. at 544, 103 S.Ct. 897, nothing
about these calculations is inordinately complex. One need
only know two pieces of information: the amount of cathode
purchased by Viacom and the amount of cathode purchased and
sold by those who sold cathode to Viacom. From there,
34a
reasonable estimates of damages are the order of the day.
Because this estimation is not overly complex and will not lead
to duplicate damages, it provides a sufficient basis at this stage
for the case to proceed to the merits.
The defendants’ next major attack rests on hedging.
Commodities exchanges function in part to protect participants
in a physical market by shifting some of the risk (and damage)
caused by fluctuations in price to participants in the futures
market. Extending this principle, Global and CLR claim that
through an extremely complicated set of economic interactions
between the cash and futures markets, the damages experienced
in the physical cathode market will be duplicated in their
entirety by damages suffered in the futures market. Therefore,
only futures traders, and not cash market participants, should be
permitted to recover.
The hedging theories advocated by the defendants are based
on economic theory, with no specific application of that theory
here that would correlate sales in the cash market and sales in
the futures market. Notably, Viacom’s individual purchases
from its suppliers were not hedged. Neither Viacom nor
Asarco purchased a futures contract as a hedge every time they
exchanged copper. Had they done so, then perhaps one might
be able to “match” each physical market transaction to a futures
contract sale and argue that the opportunity for a trader to
recover the overcharge in a federal lawsuit should preclude
recovery for the overcharged physical market participant.
Emerson’s supplier, Phelps Dcdge, did hedge some of its sales
to Emerson. On remand, the district court should explore
further whether these hedging transactions would lead to some
degree of duplicate recovery and a corresponding need to
reduce damages. Nevertheless, since our review of the record
indicates that not all of Phelps Dodge’s sales were hedged, we
conclude that Emerson is an appropriate plaintiff for the same
reasons as Viacom.
35a
In any event, the kind of futures matching the defendants’
postulate does not reflect the way that most hedging works in
the copper futures market. Asarco did not buy futures. Instead,
it purchased put options. Put options are strategic hedges
designed to protect against a general risk of declining cathode
prices. With a put option, Asarco had the right, but not the
obligation, to sell a futures contract if the price fell below a
certain “strike” price. See United States v. Catalfo, 64 F.3d
1070, 1072 (7th Cir.1995). But as the defendants were
artificially inflating the price of cathode throughout the period
at issue here, the price never would have fallen below the strike
price. Therefore, no sale ever would have gone forward and the
only damages Asarco would have suffered from the conspiracy
would have been the cost of the put option, or, more properly,
the amount by which the price of the put option changed
because the price of copper was artificially high.
The defendants and their experts have made no attempt to
correlate the damages Asarco could theoretically recover on the
futures market for its put options to the specific damages
sought here by Viacom, and the relationship is far from
intuitively obvious. Instead, the experts trace the potential for
hedging by numerous parties upstream and downstream from
Viacom and contend that because so many participants in the
copper industry use so many different forms of hedging there
will be “inevitable” duplication between the cash and futures
markets.
This sort of potential duplication bears no resemblance to the
duplication rejected in J/linois Brick and A GC, 459 U.S. at 544,
103 S.Ct. 897, nor do we think that it independently provides a
reason to deny recovery to Viacom. In Illinois Brick, any
“pass-on” of damages would (because of Hanover Shoe)
already be taken into account in its entirety in the recovery to
another potential party, the direct purchaser. 431 U-S. at
737-38, 97 S.Ct. 2061. This simply is not the case here.
36a
Asarco strategically hedged only about half its output. The
defendants claim that potential hedging by those parties to
whom Viacom sold and from whom Asarco purchased raw
materials is also relevant, but this cannot be so under Sanner.
There we held that injuries incurred in futures market purchases
not linked to any particular cash market purchases did not
“duplicate” and were not more “direct” than the cash market
injuries. 62 F.3d at 929-30. Because there are two separate
markets, each with compensable injuries, the opportunity for
recovery in one market does nothing to alleviate the harm in the
other. For similar reasons, the fact that Comex futures traders
have received money in a now-settled lawsuit says nothing
about the ability of Viacom or other similarly situated plaintiffs
in the cash market to recover.
Finally, the defendants note that Asarco and three of the
manufacturers’ other suppliers have recovered in a lawsuit
brought in California state court. This lawsuit was brought
pursuant to California law, which permits suit by indirect
purchasers. Union Carbide Corp. v. Superior Ct., 36 Cal.3d 15,
201 Cal.Rptr. 580, 679 P.2d 14, 16 (1984). However, the
supposed “duplication” here comes from different bodies in our
federal system seeking to remedy separate harms. It presents
no risk of duplicate recovery for the same injury under the same
law and is thus no bar to the plaintiffs’ recovery. See
Browning-Ferris Indus. v. Kelco Disposal, Inc., 492 U.S. 257,
109 S.Ct. 2909, 106 L.Ed.2d 219 (1989) (upholding award of
both federal antitrust and state tort damages); California v.
ARC Am. Corp., 490 U.S. 93, 109 S.Ct. 1661, 104 L.Ed.2d 86
(1989) (permitting states to require offenders to pay both state
damages to indirect purchasers and federal treble damages to
direct purchasers). If the resolution of the state court action
poses a problem at all to these plaintiffs, it would be in the
nature of claim or issue preclusion. See Matsushita Electric
Indus. Co. v. Epstein, 516 U.S. 367, 116 S.Ct. 873, 134 L.Ed.2d
37a
6 (1996); Marrese v. American Acad. of Orthopaedic
Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274
(1985). It is possible that the defendants have waived their
right to assert any such defense; it is not mentioned in their
briefs before this court. Accordingly, we express no opinion at
this time on the merits of any preclusion argument.
In sum, ofall participants in the physical market, Viacom and
other first purchasers of cathode are the only plaintiffs possibly
situated to recover damages against the defendants for the
anti-competitive harms they have inflicted on the physical
market for copper cathode. Faced with the option of permitting
a clear, non-speculative harm to the cash market to go
unremedied or of allowing the plaintiffs’ suit to go forward, we
elect the latter. As narrowed to first purchases, there is no
danger of duplication of recovery, and so, under AGC and
Sanner, the claim should proceed to trial.
a
The final broad claim of the defendants is that recovery of
damages in this case simply would be too speculative and
complex to warrant allowing this suit to proceed. Cf AGC, 459
U.S. at 542, 103 S.Ct. 897. Based on the evidence adduced by
Viacom, however, we disagree. The main complication will
come from attempting to discern how much of the Comex price
of copper at a given time represented an overcharge due to the
defendants’ manipulation and how much stemmed from normal
economic forces. This difficulty, however, occurs in every
price-fixing case. It is no different from the task of gauging the
damages recoverable by Comex futures traders, whom
defendants have conceded to be proper plaintiffs. Through
discovery, economic experts can ev:luate the impact of the
defendants’ illegal actions on the futures market and come to
reasoned conclusions. Cf Sanner, 62 F.3d at 930 (rejecting
claim that damages analysis in a market manipulation is
38a
“beyond the ken of the federal courts”). At that point, recovery
could be calculated by reviewing all of Viacom’s contracts
(assuming they are similar to the ones already in the record)
and assessing damages based on the already computed
overcharge. Since the only other factors involved in setting the
price of Viacom’s cathode are items which have no relation to
the Comex price, such as freight charges and cash payment
discounts, and the cathode premium, for which Viacom does
not seek to recover, there should be no problems as a theoretical
matter with making these calculations. The mere fact that each
individual transaction relevant to an antitrust scheme must be
examined on a case-by-case basis to assess damages does not
thereby render those damages speculative. American Ad
Megmt., Inc. v. General Tel. Co. of Cal., 190 F.3d 1051, 1059
(9th Cir.1999).
We fully recognize that perfecting such economic analysis,
tracking every pound of cathode refined or purchased by
Viacom’s suppliers, and locating every cathode contract
Viacom entered into over a six-year span will not be easy. But
complex litigation is hardly new for the federal courts, whether
it is in the field of antitrust, environmental clean-ups, pension
law, or accounting frauds. The key here is that the damages are
not inherently speculative in the sense that AGC used that term.
See 459 U.S. at 542, 103 S.Ct. 897. Nor, as in J/linois Brick or
Hanover Shoe, is a party asking a jury or the district court to
perform some form of econometric analysis to deduce whether
all, some, or none of an overcharge was passed on down a chain
of distribution. J/linois Brick, 431 U.S. at 727, 97 S.Ct. 2061.
Instead, one need only determine through available records
what percentage of cathode bought by Viacom represents first
purchases. This is not speculative or complex, only
time-consuming, and we are confident that the parties and their
counsel are up to the task.
Abb inthe nd Sit ceil eah:
39a
The defendants’ entire case theory, apparent not only here
but also through their discussion of duplication and hedging,
seems to be the troubling one because their scheme was so evil,
went undetected for so long, and caused so much economic loss
throughout the cash market, that we should simply give them a
pass from the antitrust laws. This is not now and never has
been the law. Since the days of Eastman Kodak Co. v. Southern
Photo Materials Co., 273 U.S. 359, 379, 47 S.Ct. 400, 71 L.Ed.
684 (1927), it has been established that in complicated antitrust
cases plaintiffs are permitted to use estimates and analysis to
calculate a reasonable approximation of their damages. While
we fully agree that we should not use the massiveness of
defendants’ conspiracy as an excuse to punish them unduly (by,
for example, permitting the Scrap Dealers in Loeb to recover
for harms that would duplicate those of Viacom), the sensible
solution is to let one--but only one--level of purchasers in the
physical copper market recover. Based on all the evidence
available on summary judgment, the best plaintiff in this
market is the first purchaser of copper cathode, and Viacom and
Emerson are prototypical examples of such plaintiffs. The
district. court erred in dismissing the case at this stage, and we
must therefore reverse its judgment.
C. Ocean View (Nos. 01-3229, 01-3230)
We turm to the fina! plaintiff, Ocean View. We have already
rejected the defendants’ principal argument for affirming
summary judgment in this case, that the action is barred by the
Illinois Brick direct purchaser rule. For the same reasons
discussed in connection with Viacom’s action, there is no party
along a chain of distribution between Ocean View and any of
the defendants who can recover for an alleged overcharge.
Therefore, J/linois Brick is inapplicable. Instead, this case is
controlled by the basic premise of Sanner, 62 F.3d at 929-30,
which holds that a cash market participant injured by a party’s
illegal actions in the futures market may, in some instances, sue
vommnaneeiecpsiiemnigsimcssiiitltital atest iii
EE AERIS ki ROO eke gee
40a
that party under the federal antitrust laws. The controlling
factors in this inquiry are those set out in AGC, 459 US. at
537-45, 103 S.Ct. 897. The defendants allege that under an
analysis of these factors, Ocean View’s claim should still be
precluded, while Ocean View contends that it should be entitled
to recover for every copper rod it has ever purchased, or, in the
alternative, that it may recover at least for those instances
where it was the first purchaser of copper in cathode form.
As with the Scrap Dealers, we must reject Ocean View’s
proposition that it can recover for rod manufactured from
cathode purchased by others, such as its semi-fabricators. Such
an injury would be indirect because the semi- fabricator would
serve aS a more immediate victim of the antitrust violation
intended to affect the cash and futures markets for cathode.
AGC, 459 U.S. at 541-42, 103 S.Ct. 897; supra at 484-85.
Semi-fabricators who purchased cathode would stand in shoes
similar to those of Viacom, purchasing large quantities of
cathode to reshape and sell as rod or wire. Because they are
well-situated to bring any claim for inflation in the physical
market, there is no need for Ocean View, as a more remote
party, to step in “to vindicate the public interest in antitrust
enforcement.” AGC, 459 U.S. at 542, 103 S.Ct. 897.
Additionally, granting recovery to both a semi-fabricator for
its cathode purchase and Ocean View for its purchase of that
same cathode reshaped as rod would lead to either duplicate
recovery or complex damage apportionment in violation of the
principles underlying AGC. 459 US. at 544, 103 S.Ct. 897. We
have already rejected the claim that the copper market should
not be subject to a ban on duplicate recovery because copper
pricing decisions are based on Comex and not a “pass on” of
historical costs, supra at 486. To avoid such duplicate recovery
one must either attempt to apportion damages along a chain of
distribution, forbidden by AGC, or deny the right to sue to all
but one plaintiff along the chain of distribution.
4la
The best-situated plaintiff to recover is the first purchaser of
copper cathode, the specific commodity the defendants targeted
in their futures market conspiracy. For such a plaintiff, it is
possible both to avoid duplicate recovery problems and at the
same time to ensure that antitrust harm perpetrated in the cash
market will not go unremedied. Based upon on our review of
the record, we are satisfied that in at least some cases Ocean
View did purchase cathode refined by integrated producers.
The existence of such purchases is enough to get Ocean View
in the door; recovery should not be denied simply because a
plaintiff may not receive damages as high as it would like. The
quantity of such sales, and thus the eventual damages Ocean
View might get if it manages to prove the rest of its case, can
await further discovery. Like Viacom, Ocean View will have
the burden of ascertaining what percentage of the cathode sold
by these producers was refined by them and not purchased from
third parties. If, as defendants fear, many of these records are
lost, that fact will come out in discovery, and they may move
for a missing evidence instruction or perhaps even summary
judgment on the merits.
We have already rejected most of the other claims the
defendants make for denying Ocean View recovery, including
the proposition that the integrated producers’ purchase of
copper raw materials should somehow render them improper
plaintiffs, supra at 489, and the claim that hedging on the
copper futures markets by some physical market participants
renders the injury indirect or duplicative, supra at 491-92.
Finally, we have found that the damages claimed are not too
speculative or complex, supra at 492-93.
At this point we can think of only one possible distinction
between Ocean View and Viacom that deserves further
comment. That is the fact that while Viacom purchased
cathode, Ocean View bought cathode that had been tolled into
rod. The parties do not focus on this distinction much in their
42a
briefs, and the defendants concede that there is no physical
difference between cathode and rod other than the product’s
shape. Based upon our review of the contracts in the record,
the price Ocean View paid its integrated producers for rod
appears to be identical to that paid by Viacom for cathode
except for the existence of an additional rod premium. We
assume, since the defendants do not contend otherwise, that like
the cathode premium, the rod premium 1s a small fraction of the
total price paid and tends to increase as the Comex price
increases, so that it does not in some way offset the Comex
inflation or render the injury indirect. In that case, the
similarities between cathode and rod are close enough that, in
instances where the same integrated producer refines raw
materials into cathode and then shapes it into rod, Ocean View,
as the first purchaser after the materials are formed into
cathode, can state a claim, regardless of whether that copper is
then in the form of cathode or rod. Cf In re Sugar Indus.
Antitrust Litig., 579 F.2d 13, 17-18 (3d Cir.1978) (finding no
distinction for AGC purposes between price-fixed sugar and
candy incorporating that price-fixed sugar sold into the market
for the first time).
VI.
In addition to their points under J/linois Brick and AGC, the
various plaintiffs make arguments specific to their own cases.
Most of these involve procedural issues. We consider these
points in turn, on an issue-by-issue basis.
A. RICO and State Law Claims
We begin once again with the Loeb action. Our
determination that the AGC factors prevent the Scrap Dealers
from pursuing their antitrust claims disposes of their remaining
claims against Sumitomo and Global for violations of RICO
and state law. It is also dispositive of all claims against
JPMorgan Chase.
43a
The district court dismissed the Scrap Dealers’ RICO claims
on the ground that the AGC factors apply equally to RICO. The
Scrap Dealers, however, argue that even if their antitrust claim
fails, their RICO case should proceed. This claim lacks merit.
Civil RICO was modeled after the Clayton Act. Holmes v.
Securities Investor Protection Corp.,503 U.S. 258, 267-69, 112
S.Ct. 1311, 117 L.Ed.2d 532 (1992). To satisfy its requirement
of proximate causation, the Scrap Dealers must allege a relation
between their injury and the defendants’ violation that is neither
indirect nor remote. /nternational Bhd. of Teamsters, Local 734
Health & Welfare Trust Fund v. Philip Morris, Inc., 196 F.3d
818, 825 (7th Cir.1999) (applying AGC factors to a proximate
causation analysis). Since we have already determined that the
Scrap Dealers’ injury is too indirect and remote under AGC for
antitrust purposes, we conclude that the relation 1s similarly too
remote for RICO purposes.
The Scrap Dealers also assert that the district court erred in
finding that they had abandoned their state law claims. On this
point, they appear to be correct. There is certainly no evidence
in the record that the Scrap Dealers voluntarily dismissed or
failed to pursue their various state law claims. The defendants
argue that these claims were abandoned when the Scrap Dealers
attempted to certify a class for the federal antitrust claims but
not for the state claims. But no inference of abandonment
should flow from a limited request for a class action; to the
contrary, fed. R. Civ. P.23(c)(4)(A) specifically recognizes that
“an action may be brought or maintained as a class action with
respect to particular issues.” It would be entirely consistent
with the rule to seek certification on issues governed by federal
law, whiie declining to do so for more particularized state law
issues. Nevertheless, the fact remains that we have dismissed
all of the Scrap Dealers’ federal claims against Sumitomo and
Global. Since the Scrap Dealers have asserted no independent
basis for federal subject matter jurisdiction, it is entirely
44a
appropriate to dismiss the state law claims, though without
prejudice. See 28 U.S.C. § 1367(c)(3); Oates v. Discovery
Zone, 116 F.3d 1161, 1173 n. 12 (7th Cir.1997).
B. Issue Preclusion: JPMorgan Chase
The district court dismissed the Scrap Dealers’ claims against
JPMorgan Chase on issue preclusion grounds. To prove that
issue preclusion applies, the defendant must establish that (1)
the plaintiff was fully represented in the prior litigation, (2) the
issues to be precluded are identical to those in the prior
litigation, (3) the issues were actually litigated and decided on
the merits, and (4) resolution of the issue was necessary to the
judgment. People Who Care v. Rockford Bd. of Educ., 68 F.3d
172, 178 (7th Cir.1995). The Scrap Dealers’ claims against
JPMorgan Chase arise from an alleged conspiracy between
JPMorgan Chase and Sumitomo in which JPMorgan Chase’s
metals desk somehow furthered the conspiracy through its own
copper purchases on the LME. The issue the defendants sought
to preclude, that of the Scrap Dealers’ ability to recover as a
proper plaintiff under the antitrust laws, was actually litigated
and decided on the merits in their suit against Sumitomo. That
is enough to bind the Scrap Dealers, who have now had their
day in court, with respect to JPMorgan Chase as well.
The Scrap Dealers argue, however, that their day in court was
flawed, because they did not have an opportunity to litigate
these issues fully before the district court. Their only support
for this contention is the fact that the district court turned
Sumitomo’s motion to dismiss into a summary judgment
motion without notice to them. As we have already noted, this
action by the district court, while in error, did not prejudice the
Scrap Dealers. The antitrust issues were fully litigated by
counsel, albeit at the class certification stage. Besides this, the
district court gave the Scrap Dealers an opportunity for a
hearing prior to dismissing the JPMorgan Chase claims at
45a
which they were invited to bring forth any additional arguments
that would call into question the district court’s prior grant of
judgment to the defendants. The Scrap Dealers produced no
new evidence at that time that would call into question the
factual basis for that determination. Therefore, we affirm the
district court’s decision to dismiss all claims brought by the
Scrap Dealers against JPMorgan Chase on issue preclusion
grounds.
C. Statement of Claim Against CLR
CLR advances one final argument in support of the judgment
in both Viacom and Ocean View, which applies only to itself
and not to its co- defendants. The district court stated in the
Viacom action that, while it would not “address the issue in any
detail,” it believed that Viacom had made an inadequate
showing that CLR’s activities in any way affected the prices
Viacom paid for copper. CLR urges this as an alternate ground
for affirmance.
The procedural history of this argument is complex and
seems to have engendered a great deal of enmity between the
parties.
The parties filed cross-motions for summary judgment on the
standing question in the Viacom action. In its lengthy joint
motion with Global, CLR never argued that its role in the
conspiracy was too attenuated to have directly affected the
Comex price. The issue was first raised in CLR’s response to
Viacom’s cross- motion. Viacom, in reply, pointed to evidence
in the record that addressed this new argument. The district
court struck these submissions as untimely. This, however, was
in error. Viacom had no obligation to produce specific
evidence of CLR’s role to survive CLR’s motion for summary
judgment since the issue was never raised by CLR at that stage.
Aviles v. Cornell Forge Co., 183 F.3d 598, 604-05 (7th
Cir.1999). Because CLR raised this argument in an untimely
46a
manner, the district court should not have considered it as a
ground for summary judgment without giving Viacom “notice
and a fair opportunity to present arguments and evidence in
response.” Jd. By striking the materials Viacom submitted, the
district court denied just that opportunity. Of course, since we
are remanding this case on other grounds, the issue may
resurface again after further discovery. At that point,
considering all evidence in the record, the district court may
properly evaluate--after considering all record
evidence--whether either Viacom or Ocean View has presented
enough to connect CLR to any violation of the antitrust laws.
For the foregoing reasons, we also deny CLR’s motion to
strike.
D. Aiding and Abetting: JPMorgan Chase
Another minor issue crops up only in Ocean View, but it too
can be disposed of easily. JPMorgan Chase asserts that the
district court incorrectly denied its motion to dismiss on the
ground that the complaint failed to state a claim against it
because it only aided and abetted the conspiracy between
Sumitomo and Global. But Ocean View 1s not attempting to
state an “aiding and abetting” case. Its allegation is that
JPMorgan Chase was a participant in the conspiracy to
manipulate the copper market. To state such a clam, Ocean
View need only prove that JPMorgan Chase knew Sumitomo
intended to restrain trade, intended that trade be restrained, and
materially contributed to that restraint. 7 Phillip E. Areeda,
Antitrust Law: An Analysis of Antitrust Principles and Their
Application, 4 1474a (1986); Poller v. Columbia Broad. Sys.,
Inc., 368 U.S. 464, 470, 82 S.Ct. 486, 7 L.Ed.2d 458(1962). A
broad reading of the complaint alleges this and more. It states
that JPMorgan Chase, aware that Sumitomo was manipulating
futures prices, provided services and loans at well
above-market prices to finance and hide Sumitomo’ sactivities.
JPMorgan Chase also allegedly stonewalled ard lied to
4/a
regulators and otherwise helped Sumitomo in an attempt to
avoid investigations, all the while profiting handsomely on its
deal. Of course, after merits discovery, it may come to pass
that Ocean View lacks the evidence to establish any of these
claims. But accepting the allegations as true, it is entitled to
proceed.
E. Reinstatement of Claims
Only a few bref housekeeping matters remain. In both
Viacom and Ocean View, the district court also granted the
defendants summary judgment on their RICO and fraud claims
because RICO contains rules similar to the Clayton Act for
identifying proper plaintiffs. Jnternational Bhd. of Teamsters,
196 F.3d at 825. Having found that the plaintiffs here may
pursue their antitrust claims, the RICO claims must be
reinstated as well. The same goes for the state law claims.
They were dismissed without prejudice in Viacom only because
all federal claims had dropped out of the case. Finally, in
Ocean View, the district court dismissed Ocean View’s claim
under Rhode Island state law on the ground that Rhode Island
law imposed standing requirements similar to those of federal
law. Expressing no opinion on the merits of that determination,
we note that since we have found that Ocean View may proceed
on at least some of its claims under federal law, the dismissal
of the Rhode Island claim on similar grounds must be
reconsidered.
VIL.
To summarize, we MODIFY the dismissal of the state law
claims in No. 00-3979 to reflect that this dismissal was without
prejudice. In all other respects we AFFIRM the judgment of
the district court. We also AFFIRM the judgment in No.
01-1148. On the other hand, we find that Viacom, Emerson,
and Ocean View are not indirect purchasers under JIlinois
Brick, and their injury is direct, predictable, and unlikely to
48a
produce duplicate recovery or speculative damages. Therefore,
in Nos. 01-3229, 01-3230, and 01-3485, we REVERSE the
judgment of the district court and REMAND for further
proceedings.
CUDAHY, Circuit Judge, concurring in Nos. 00-3979 and
01-1148 and concurring in the judgments in Nos. 01-3485,
01-3229 and 01-3230.
I join in the outcomes reached by the majority in the several
cases, but I write separately to question the appropriateness of
finding a “lockstep” relationship between the copper futures
and cash markets in the analysis of the claims of Viacom,
Emerson and Ocean View.
The analysis and outcome in Sanner (which relied on the
allegations of a complaint, not a summary judgment record)
were based on the thesis that the futures market and the cash
market tended to move in “lockstep.” Thus, the relationship of
futures prices of soybeans on the Chicago Board of Trade and
the cash price of soybeans to be realized by farmers could be
assumed to be simple, direct and absolutely predictable. “The
futures market and the cash market for soybeans are ... ‘so
closely related’ that the distinction between them is of no
consequence to antitrust standing analysis.” 62 F.3d at 929.
Based on the complaint, there could be no question that a given
manipulation of the futures market produced a precisely
proportionate consequence in the cash market.
This is hardly the case with the Comex and the market for
physical copper. Even though the majority attempts to
minimize the departures from a fully direct relationship
between the futures and the physicals market (and takes issue
with the more critical analysis of these relationships by the
district court), under either view “lockstep” becomes more a
49a
slogan than a fact. And, of course, it was the existence of a
“lockstep” relation that apparently excused Sanner from the
strictures of J/linois Brick v. Illinois, 431 U.S. 720, 97 S.Ct.
2061, 52 L.Ed.2d 707 (1977) and squared it with Associated
General Contractors of California, Inc. v. California State
Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74L.Ed.2d
723 (1983). The existence, in the case before us, of a negotiable
premium (or discount) as part of the price is enough in itself to
remove this relationship from the “lockstep” category. And, if
the language of Kansas v. UtiliCorp United. Inc., 497 U.S. 199,
216, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990) about the
undesirability of exceptions to //linois Brick were to be applied
here, the outcome might be in doubt.
With respect to the possibility of duplicative recovery,
Sanner is also quite distinguishable. There the plaintiff-farmers
produced the commodity, bought none of it and there was no
trade in any precursor raw material. Here the
plaintiff-manufacturers bought from integrated producers,
which purchased from others substantial quantities of copper
cathode and pre- cathode copper raw material (the price of
which also tended to follow the copper futures market).
I believe, therefore, that the case before us, although it seeks
to apply Sanner’s principle, may be a major step beyond
Sanner. The outcome, however, may be justified insofar as
there is sufficient evidence that the defendants engaged in
massive physical cathode transactions and intended to
manipulate physical prices as well as futures prices and thus to
injure purchasers such as the plaintiffs. See Sanner, 62 F.3d at
929 (“even if we were to assume ... that there is a distinction
between markets that is relevant to antitrust standing, the
farmers here have alleged that one of the CBOT’s objectives in
adopting the Resolution was to prompt a price decline in the
cash market for soybeans.”).
50a
306 F.3d 469, 2002-2 Trade Cases P 73,813, RICO
Bus.Disp.Guide 10,330, Comm. Fut. L. Rep. P 29,168
APPENDIX B
DISTRICT COURT OPINION
United States District Court.
W.D. Wisconsin.
In re COPPER ANTITRUST LITIGATION.
Ocean View Capital, Inc., f/k/a Triangle Wire &
Cable, Inc.,
Plaintiff,
Vs
Sumitomo Corporation of America, Sumitomo Corporation,
Sumitomo Futures Corporation, Global Minerals and Metals
Corporation, David Campbell, and Credit Lyonnais Rouse,
Defendants.
Ocean View Capital, Inc., f/k/a Triangle Wire &
Cable, Inc.,
Plaintiff,
V.
J.P. Morgan & Co., Incorporated and Morgan Guaranty Trust
Company of New York,
Defendants.
MDL No. 1303
Nos. 99-C-0801-C, 00-C-0528-C
July 23, 2001
OPINION AND ORDER
CRABB, District Judge.
Plaintiff Ocean View Capital, Inc. brought these two antitrust
actions for damages, alleging in Case No. 99-C-0801-C that it
had been injured by conspiratorial actions taken by defendants
Sumitomo Corporation of America, Sumitomo Corporation,
52a
Sumitomo Futures Corporation, Global Metals and Minerals
Corporation, David Campbell and Credit Lyonnais Rouse in
violation of the antitrust laws of the United States. It alleged
that “[b]eginning in 1990, if not earlier, and continuing through
June 13, 1996, defendants conspired to manipulate and corner
and did manipulate and corner the market for physical copper
and copper futures.” Amended Compi., 4 22. Plaintiff sued
defendants J.P. Morgan & Co., Incorporated and Morgan
Guaranty Trust Company of New York in Case No.
00-C-0528-C for participating in the conspiracy and helping to
effectuate it by providing capital to the Sumitomo defendants
and helping to conceal the existence of the conspiracy. Plaintiff
alleged that defendants’ actions had caused it harm because it
had been forced to pay higher prices for the physical copper it
purchased as a direct and predictable consequence of the
manipulation of the futures market and the comering of the
physical market for copper. The cases were consolidated with
others in this court by order of the Judicial Panel on
Multidistrict Litigation. Jurisdiction is present. 28 U.S.C. §
1331, 15 U.S.C. § 15.
The two cases are now before the court on motions for
summary judgment filed by all defendants, who contend that
plaintiff lacks standing under the antitrust laws to bring this
action. Defendants acknowledge that the allegations of plaintiff
Ocean View Capiial’s original complaint were sufficient to
survive a motion to dismiss for failure to state a claim, see Jn re
Copper Antitrust Litigation, 98 F.Supp.2d 1039 (2000), but
assert that with the completion of discovery on the standing
issues, it has become evident that plaintiff lacks antitrust
standing. The Morgan defendants advance the same arguments
as the other defendants. In addition, they have moved to
dismiss the complaint against them on the ground that
plaintiffs allegations do not state an antitrust violation against
them. I conclude that plaintiff lacks antitrust standing to bring
53a
an antitrust action against the moving defendants in both cases
for a variety of reasons, including the indirectness of plaintiff s
injury and the difficulty of calculating the damages to which it
would be entitled. Therefore, I will grant defendants’ motions
for summary judgment. Plaintiff made a request in its brief for
summary judgment in its favor but has shown no reason why its
request should be granted. Its unsupported motion for summary
judgment will be denied. The disposition of the other motions
makes it unnecessary to address the Morgan defendants’ motion
to dismiss, which is based on its contention that plaintiff has
failed to allege an antitrust violation against them.
From the facts proposed by the parties, I find that the
following are material and undisputed.
UNDISPUTED FACTS
A. The Parties
Plaintiff Ocean View Capital, Inc., f/k/a Tnangle Wire &
Cable, Inc., is a corporation organized and existing under the
laws of Delaware, with its principal place of business in Rhode
Island. Between 1990 and 1996, plaintiff was engaged in the
manufacture of copper wire and cable. Defendant Sumitomo
Corporation of America is a corporation organized and existing
under the laws of New York with its principal place of business
in New York. Defendant Sumitomo Corporation is a
corporation organized and existing under the laws of J apan with
its principal place of business there. Defendant Sumitomo
Corporation Futures, Inc. is a corporation organized and
existing under the laws of Delaware. Defendant Global
Minerals and Metals Corporation is a corporation organized and
existing under the laws of Delaware. It is a trader of physical
copper and copper futures. Defendant David Campbell was a
principal of Global at times relevant to this suit. Defendant
Credit Lyonnais Rouse is a foreign corporation authorized to do
business in the state of New York.
54a
B. The Copper Market
1. Production of copper
In manufacturing building wire, cable and other copper
products, plaintiff used copper rod, which is fabricated from
copper cathode. Between 1990 and 1996, the vast majority of
copper rod was manufactured in a four-step process. The first
step involved extracting copper ore from a mine and placing it
in a concentrator to be crushed, milled and treated with a
variety of chemicals to extract the minerals and then turned into
a powder or gravel-like substance called copper concentrate,
which is between 18 to 50% copper. The second step of the
process is smelting, which separates the nonferrous metals in
the copper concentrate from other minerals, such as sulfur and
iron. Smelters also melt and process various forms of copper
scrap, such as the copper that remains unused when copper rod
is made into copper wire as well as used copper wire itself.
Smelters produce “blister” or “anode” from concentrate and
scrap. Anode products are one-meter square plates of
approximately 98 to 99% copper.
In the third step of the manufacturing process, anode (or
blister or copper scrap) is refined electrolytically in a tank of
electrolyte containing sulfuric acid and other chemicals. A
“starter sheet” of pure copper is placed in a tank where an
electrical charge is passed through the electrolyte for several
days, causing the copper atoms from the anode to migrate
through the acid and accumulate on the starter sheet. The final
product is a one-meter square plate, “copper cathode,” that is
more than 99% copper. In the fourth step, continuous cast
copper rod is fabricated from cathode at a rod mill, where
cathode or scrap or both are fed into a furnace and melted as
they descend through the furnace. At the bottom, spouts direct
the molten metal onto a casting wheel that produces a solid bar
of copper, which is then processed through a series of dies that
a
y
I
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55a
graduaily reduce the size of the bar to a 5/16” diameter. In
terms of chemical composition, the rod is identical to copper
cathode; only its appearance has changed.
2. Market participants
Players in the copper market include integrated producers,
semi- fabricators, producers, traders, scrap dealers and end
users, among others. Integrated producers extract copper ore
from mines and process it through the Stages of concentrate,
blister, anode and cathode. Some have the facilities to fabricate
cathode into rod. Despite their ownership of production
facilities, producers routinely supplement their own production
with scrap, concentrate, blister, anode, cathode and rod bought
from unaffiliated producers and traders or from affiliated
facilities in which they own partial interests. Asa general rule,
in buying from affiliated facilities, the producer pays the same
price for copper that an unaffiliated entity would pay.
The producers that sold rod to plaintiff owned rod mills.
Other rod mills exist that are owned by independent companies
known as “semi-fabricators.” These semi-fabricators obtain
cathode and scrap from producers or trading companies and
make it into rod. In addition, they will accept cathode from
manufacturers such as plaintiff and convert it into rod for a
fabrication fee under an arrangement known as “tolling.”
Integrated producers purchase copper from outside sources
for a number of reasons. First, the copper is expensive to
move. In many instances, it is more economical for the
producer to purchase copper froma third party near the delivery
point than to transport it. Second, marketing opportunities may
arise that a producer cannot exploit if it relies solely on its own
production capacity or if it has oversold product in advance or
if it is undergoing renovation or expansion of its production
facilities. Third, there may be mismatches among a producer’s
facilities. The mines might not be producing enough ore to
Tessas
56a
keep the smelters operating efficiently or the smelter not
making enough blister to fill the refinery’s capacity. Fourth, a
facility might be temporarily inoperable as a result of flood,
earthquake, strike or other unforeseen event.
Trading companies buy and sell copper in the form of
concentrate, anode, blister, cathode and scrap but do not own or
operate any facilities to process copper. All of the trading
companies that sold copper to plaintiff purchased the copper
from producers, semi-fabricators and other trading companies.
Semi-fabricators own and operate rod mills or convert
cathode into tubing or rod into wire. Like traders,
semi-fabricators do not own mines or concentrators and
generally do not own smelters or refineries. Semi- fabricators
purchase cathode from producers and traders and fabricate the
cathode into rod. Some semi-fabricators have the facilities to
convert scrap into cathode, which they then fabricate into rod.
In addition, semi- fabricators enter into “tolling arrangements”
with customers under which they use cathode supplied by the
customer to produce rod. In _ those. situations, the
semi-fabricator charges the customer only for the cost of
conversion and delivery (the rod premium).
3. Copper pricing
On a daily basis, producers, traders, semi-fabricators, scrap
dealers and end-users such as plaintiff buy and sell copper in
the form of concentrate, blister, anode, cathode, rod and scrap
at prices set with reference to the copper prices on the
Commodity Exchange, Inc. division of the New York
Mercantile Exchange (Comex) or the London Metal Exchange.
Between 1990 and 1996, plaintiff purchased copper in the form
of rod and cathode. Plaintiff was not trading on the futures
-exchanges allegedly manipulated by defendants.
57a
Plaintiff “tolled” most of the cathode it purchased with rod
mills pursuant to tolling agreements. Also, it purchased
cathode that it resold at a profit. In all these sale and re-sale
transactions, the purchase price of the cathode was set with
reference to Comex.
Most of the copper plaintiff purchased was in the form of rod
that it used to manufacture building wire and other products.
The price it paid for rod was based on a formula that was a
combination of four elements: 1) an exchange- based price
formula; 2) a cathode premium; 3) a rod or “shaping”
premium; and 4) shipping charges. The exchange-based price
formula was set with reference to Comex.
The cathode premium was designed to account for the
difference between buying a single contract on the Comex for
an unknown brand of copper at an unknown Comex warehouse
location and buying a known brand of copper cn a known date
with a known quality, aswell as more favorable payment terms.
The premium was influenced by market forces such as
perceptions of supply and demand and the prices competitors
were charging. Like the cathode premium, the rod premium
was influenced by market forces of supply and demand and
reflected factors such as the cost of conversion of cathode into
rod.
The shipping charge was the cost of shipping the rod to
plaintiff. It could vary with transportation rates and the
availability of discounts offered by the supplier. These might
be proximity discounts determined by the distance from the
supplier, the creditworthiness of the buyer, the supplier’s
interest in gaining the buyer’s business and other offers the
buyer might have received. Plaintiff ne gotiated the cathode and
rod premiums and Shipping charges with each supplier
separately.
58a
In manufacturing building wire and cabie, plaintiff produced
scrap copper, some of which it sold to scrap dealers for cash at
prices set by reference to Comex. Also, plaintiff exchanged
scrap copper for copper cathode that it tolled with rod mills or
producers. The value of the scrap copper was set by reference
to the published scrap prices that were set by reference to
Comex.
Although the prices of all forms of physical copper are set by
reference to prices on the futures markets, there is no single
Comex or London Metal Exchange price quoted and used by all
physical market participants at any one time. Comex quotes 24
different prices, one each for delivery in the present month and
each month up to two years in the future. Participants in the
physical copper market also use Comex intra-day prices to set
the prices of the copper they buy and sell. Purchasers of
physical copper utilize a variety of exchange based formulas to
set the price of the copper at the same time in light of their own
particular pricing strategies, which are driven by their own
views of supply and demand. For example, between 1990 and
1996, cathode and rod were bought and sold utilizing such
formulas among others as 1) the Comex month average price
for the month of delivery; 2) the Comex price at a particular
time during the month of delivery; 3) forward fixed pricing;
and 4) the previous day’s Comex closing price. At various
times between 1990 and 1996, plaintiff used each of these
formulas to set the price of the rod it purchased. To various
degrees, the pricing formula employed will -protect the
purchaser from the effects of a manipulation of the underlying
index that is used as reference point.
The premiums and discounts that are components of the price
of various forms of physical copper are heavily influenced by
market forces of supply and demand and will vary over time
and from supplier to supplier. The effect of changes in Comex
or the London Metal Exchange prices on the prices that
BM LER RIDERS ARE SA HENAN ER SA TRA RE CERN
59a
purchasers pay for physical copper will therefore vary over
time (and between suppliers) because those prices are affected
directly by supply and demand factors as well as published
exchange prices.
The numerous exchange-based pricing formulas used in the
purchase of physical copper and the existence of market-driven
premiums and discounts that vary over time and among
suppliers mean that the effects ofa futures market manipulation
would be neither direct nor predictable. For example, the prices
paid for physical copper delivered in. July 1995 could have
varied by as much as 90%, depending on which pricing
formulas were used. According to fundamental principles of
economic theory, physical prices tend to diverge from futures
market prices, rather than exhibit a direct and predictable cause
and effect relationship.
The primary product that plaintiff bought between 1990 and
1996 was continuous cast copper rod. During that time period,
continuous cast copper rod was not traded on the London Metal
Exchange or Comex or stored in exchange warehouses.
C. Plaintiff's Suppliers
1. Magma Metals Corporation
Between 1990 and 1996, plaintiff purchased rod from
Magma Metals Corporation. In 1996, Magma was acquired by
BHP Copper, Inc. Plaintiff continued to make purchases from
BHP. (I will refer to both corporations as Magma.) Magma
owned and operated mines in the United States, as well as a
smelter, refinery and rod mill. It purchased copper in various
forms from third parties in order to make cathode and rod and
sell them to its customers such as plaintiff. Between 1990 and
1996, Magma purchased concentrate both from traders and
from numerous third parties, including Asarco, Cyprus
Minerals, Cananea Mines, Grupo Mexico, Kennecott and BHP.
60a
Magma acquired concentrate from 23 different mines, five of
which it owned in full, two of which it owned in part and 16 in
which it had no ownership interest. Magma made these
third-party purchases because its own smelter’s capacity was
substantially larger than the production capacity of its mines
and because it was not economically feasible to operate the
smelter at less than full capacity. Magma’s purchases from
non-affiliated smelters (those in which it had no ownership
interest) and traders accounted for between 37 and 40% of the
concentrate it used in its refining operations. The price it paid
for concentrate was set with reference to either Comex or the
London Metal Exchange, less refining and treatment charges
that were negotiated by the parties.
Magma sold copper concentrate to producers and dealers,
including Metals & Commodity, Glencore, Cyprus, Kennecott,
Phelps Dodge, Metals Concentrates International, Inc. and
Asarco.
Between 1990 and 1996, Magma purchased blister from third
parties, such as Cox Creek Refining Corporation and Kennecott
and used it to make cathode. It purchased anode from third
parties such as Kennecott and sold it to third parties such as
Cyprus, Kennecott, Phelps Dodge, Southwire and Noranda. It
used the anode it purchased to make copper cathode. In
addition, Magma purchased copper scrap from traders and
processed it into cathode. Although it produced cathode, it also
purchased a substantial amount of cathode from third parties in
order to fulfill its obligations to its cathode customers. It also
fabricated some of this cathode, including Magma brand
cathode it repurchased from third parties, into rod that it sold to
its rod customers such as plaintiff. The prices Magma paid for
the anode, blister, cathode and scrap were set with reference to
either Comex or the London Metal Exchange. The price at
which it sold anode was set with reference to either Comex or
the London Metal Exchange.
ie 2 6 eye —_
re a a ee ee a ee Oa ee en ee OO RM Oo we SS eS it ce, A se PE Stadt SOF pee
6la
2. ASARCO Incorporated
Between 1990 and 1996, plaintiff purchased copper from
ASARCO Incorporated, primarily in the form of rod but also as
cathode. Asarco owned and operated copper mines, smelters,
refineries and rod mills in the United States. Although it was a
copper producer, it purchased copper in various forms from
third parties in order to make the cathode and rod that it sold to
plaintiff and others. Asarco purchased concentrate from
producers and traders because the capacity of its smelters was
larger than that of its mines. Although Asarco wholly owned
three mines in Arizona and had partial interests in 13 other
mines in North and South America, it obtained concentrates
from 50 mines around the world, as well as from traders.
Asarco obtained blister and anode from 12 different smelters.
Two of these were wholly owned by Asarco, three were
partially owned and the remainder were not affiliated with
Asarco. Asarco made the purchases because the capacity of its
refinery exceeded the capacity of its smelters. Asarco also
purchased small amounts of scrap for use in making cathode.
Between 1990 and 1996, Asarco’s purchases of concentrate,
anode, blister and scrap from non-affiliated sources accounted
for at least 41% of the copper that Asarco used to make its own
brand of cathode at its Amarillo refinery. The prices Asarco
paid for the concentrate, anode and scrap it purchased were set
by reference to Comex.
Between 1990 and 1996, Asarco purchased cathode from
third parties. In some instances, it repurchased its own brand
of cathode. It tended to oversell its maximum production
capacity by two to three percent each month in the expectation
that a number of its purchasers would buy less than they had
contracted for and it preferred to use its own brand of cathode
for delivery to Amarillo for rod fabrication. Between January
1993 and June 1996, Asarco purchased at least 153,000,000
pounds of cathode for delivery to its Amarillo facility. Asa
aii. ee tan a &
62a
general rule, the price Asarco paid for the cathode it purchased
from third parties was set according to a base price of the
Comex month average as well as a premium.
3. Phelps Dodge Corporation
Between 1990 and 1996, plaintiff purchased rod from Phelps
Dodge Corporation. Plaintiff contracted with Phelps Dodge to
toll cathode that plaintiff had obtained from third parties in
exchange for scrap. Phelps Dodge owned and operated mines
and smelters in the United States, as well as an electrolytic
refinery and rod mill in El Paso, Texas, and a rod mull in
Norwich, Connecticut. Approximately 67% of the rod that
plaintiff purchased from Phelps Dodge came from the Norwich
rod mill; the remainder came from the El Paso rod mill.
Although Phelps Dodge 1s an integrated producer, it also
made purchases from third parties of substantial amounts of
copper that it used to make the cathode and rod it sold to
customers such as plainuff. Between 1990 and 1996, Phelps
Dodge bought concentrate from a number of third parties,
including Asarco, Cyprus and traders, for use in its smelters
(both wholly owned and partially owned). Phelps Dodge
acquired concentrate from 25 mines, three of which it wholly
owned, six of which it partially owned and 16 in which it had
no ownership interest. The concentrate Phelps Dodge
purchased from third parties was incorporated into its
manufacturing process and used to make cathode and rod at its
El Paso refinery and rod mill. Like other integrated producers,
Phelps Dodge purchased concentrate from third parties because
its mines did not produce sufficient quantities of concentrate to
enable it to operate the mines at optimal capacity. From time
to time it purchased scrap for processing in its smelters. Phelps
Dodge also bought and sold anode that it processed at the El
Paso refinery for cathode. The anode and blister it purchased
from third party producers for its El Paso refinery originated
YS ARO UA HANNE DOES ASIST LENE ANE MB
ME POR REN
SHAS
Auta SE cis in Bie ea ots UP PR Pee oie
63a
from 13 smelters, one of which Phelps Dodge wholly owned,
three of which it partially owned and nine in which it kad no
Ownership interest.
Twelve percent of the copper Phelps Dodge used in its El
Paso refinery to create cathode came from sources in which
Phelps Dodge had no ownership interest. Only 16% of the
copper it processed came from wholly owned facilities.
Between 1992 and 1996, Phelps Dodge purchased more than
192,000,000 pounds of blister and 37,000,000 pounds of scrap
for its El Paso operations. Between 1990 and 1996, Phelps
Dodge purchased more than 750,000,000 million pounds of
cathode from other producers and traders for use in its Norwich
rod mill. It was more cost-effective to purchase third party
cathode for the Norwich facility than to ship cathode from
Texas to Connecticut. During this same period, Phelps Dodge
purchased more than 65,000,000 pounds of cathode for use at
its E] Paso rod mill. The prices Phelps Dodge paid for cathode,
concentrate, blister, anode and scrap were set with reference to
Comex or the London Metal Exchange.
4. Cyprus Copper Marketing Corporation
In 1995, plaintiff purchased 616,651 pounds of copper from
Cyprus Copper Marketing Corporation. This was less than
one-quarter of one percent of the copper plaintiff purchased
between 1994 and 1996. Cyprus purchased a small amount of
concentrate from third parties for use in its refining operations.
Beginning in 1995 or 1996, it also purchased cathode from
third parties.
5. Minemet, Inc. and Pechiney World Trade USA, Inc.
Between 1990 and 1996, plaintiff purchased cathode and rod
from Minemet, Inc. and Pechiney World Trade USA, Inc.
(Pechiney acquired the assets of Minemet in 1994.) Pechiney
and Minemet were trading companies that did not own mines,
64a
concentrators, smeiters or refineries. All of the copper‘they
sold to plaintiff had been purchased from third parties. Some
or all of the rod that plaintiff purchased from Minemet and
Pechiney had been fabricated by Westinghouse. Minemet and
Pechiney paid Westinghouse for the cathode that was in the rod
sold to plaintiff, plus a fee for fabricating the rod.
Westinghouse purchased the cathode from third parties.
Between 1990 and 1996, Pechiney and Minemet bought and
sold various forms of physical copper, including copper ore,
concentrate, blister, cathode, rod and scrap from and to
producers, traders and semi-fabricators, including other
companies that sold copper to plaintiff such as Asarco, Magma,
Gerald Metals, Southwire, Westinghouse and AmRod.
6. Gerald Metals, Inc.
Between 1990 and 1996, plaintiff engaged in copper-related
transactions with Gerald Metals, Inc. Gerald was an
international trader of copper that bought and sold copper
concentrate, anodes, blister, cathode and scrap from a number
of companies, including Asarco, Magma, Kennecott, Essex
Group, Phelps Dodge and Pechiney. The prices of the
purchases and sales were set with reference to either the Comex
or the London Metal Exchange. Gerald did not own any mines,
concentrators, smelters or refineries. Any copper it sold to
plaintiff had been purchased previously from third parties.
From 1990 until the middle of 1993, plaintiff sold scrap to
Gerald. Generally, plaintiff received cash in exchange for the
scrap; on occasion, Gerald supplied plaintiff with cathode or
rod. After mid-1993, plaintiff usually received cathode from
Gerald in exchange for scrap and arranged with Gerald for the
cathode to be sent to a rod mill where it was fabricated into
copper rod.
7. Traders
65a
Between 1990 and 1993, plaintiff purchased copper from
Barclays Metals, Deek International, Elders Raw Materials,
Mitsubishi Materials (America) and Prudential Bache. All of
these companies were trading companies that bought copper
from third parties and resold that copper to third parties. All of
the copper that these trading companies sold to plaintiff would
have been purchased by them from third parties. Plaintiff's
purchases from Mitsubishi and some of its purchases from
Barclays consisted of purchases of cathode that plaintiff resold
at a profit to traders.
8. Semi-fabricators
Between 1990 and 1996, plaintiff purchased rod from
AmRod Corporation, a semi- fabricator. Plaintiff used AmRod
to toll cathode that plaintiff obtained from third parties.
AmRod owned a rod mill in which it fabricated cathode into
rod. It did not own any mines, concentrators, smelters or
refineries. All the cathode AmRod used to make rod was
purchased from third parties, including Noranda, Asarco,
Codelco, Kennecott, Gerald Metals and Minemet, at prices set
with reference to Comex.
Between 1990 and 1996, plaintiff purchased rod from
Southwire Company, a semi-fabricator. (Plaintiff had some
tolling arrangements with the company as well.) Southwire
owned and operated a rod mill and wire mill, as well as
facilities to convert copper scrap that it obtained from scrap
traders into cathode that was then fabricated into rod. It did not
Own Or Operate any mines or concentrators. It purchased
cathode from producers and traders, including Asarco, Gerald,
Pechiney and Minemet. Occasionally, it bought cathode from
sources in Chile and Peru. Most of the cathode it purchased or
made from scrap was converted into rod. Also, Southwire sold
cathode to third parties, including manufacturers and traders.
The prices at which it purchased and sold cathode were set by
eg
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66a
reference to either Comex or the London Metal Exchange. All
of the copper rod Southwire fabricated was made from copper
it had obtained from third parties. Southwire tolled scrap
copper obtained from plaintiff into rod. Approximately 15% of
the rod plaintiff received from Southwire came from scrap
supplied by plaintiff.
D. Copper Sources
Copper is fungible and loses its identity as it is processed,
refined and fabricated into rod, making it impossible to
determine the source of the copper in any particular pound of
cathode or rod. Magma, Phelps Dodge, Asarco, Pechiney,
AmRod and Westinghouse are unable to trace the sources of
particular copper sold to plaintiff or fabricated into a particular
pound of cathode or rod.
E. Hedging
Participants in the physical copper market who contract to
buy and sell copper are exposed to the risk that price
fluctuations will reduce the value of their copper. Purchasers
are exposed to the risk that copper prices will decline before
they sell their copper. Parties who agree to sell copper at a
given price at a future date are exposed to the risk that copper
prices will increase above the contracted price. To protect
against the risk of price fluctuations, producers, traders and
semi-fabricators routinely use the futures markets (Comex or
the London Metal Exchange) to hedge their physical
obligations and shift their price risk to their counterparts in the
market. All but one of plaintiff's suppliers hedged all or part of
their physical obligations.
Gerald, Pechiney and Minemet managed their price risk by
hedging on Comex or the London Metal Exchange. AmRod
managed its price risk by hedging on Comex. Southwire
managed its price risk for some of its transactions, including all
67a
forward priced sales, by hedging on Comex. Magma managed
its forward priced sales by hedging on Comex or the London
Metal Exchange. Asarco used a variety of hedging strategies:
it hedged its future physice' production to establish a floor price
for that production; it hedged its monthly physical obligations
to balance its books (selling copper futures contracts, for
example, in months in which it had sold less copper than it had
purchased); and it hedged sales transactions with customers
when those customers forward priced or placed an order for a
future date at a fixed price. In these instances, Asarco offset the
sale with a futures contract on Comex.
Phelps Dodge regularly hedged its physical copper
obligations by buying and selling futures contracts on Comex
in order to lay off its price risk onto the market. In situations in
which a Phelps Dodge customer forward priced one month into
the future, Phelps Dodge would sometimes hedge the sale
through a back-to-back physical transaction, by simultaneously
entering into an agreement to purchase that same quantity of
rod at the same fixed price so as to avoid any price risk.
The purpose of all the hedging Strategies is to protect the
hedger from price fluctuations by transferring that risk to
participants in the futures market.
Plaintiff used copper rod to manufacture building wire and
other copper products. Because the price of copper accounted
for roughly 80% of plaintiff's manufacturing costs, the price
and availability of copper would have had a significant effect
on plaintiff's production costs and sales prices. The cost of
building wire closely follows the copper market., Comex was
the overriding factor that affected the market price of plaintiff's
copper-end products on a day-to-day basis.
F. Direct Purchases from Defendants
68a
Between 1990 and 1996, plaintiff never purchased any
copper from any of the defendants, with the exception of a
series of transactions with defendant Sumitomo Corporation of
America in 1992. These transactions took the form of
simultaneous purchases and sales and were made to enable
Sumitomo to obtain copper in more favorable locations. They
involved fewer than 11,000,000 pounds of copper and less than
$12,000,000. The documents reflecting the transactions do not
show which party received more money as a net result of the
transactions.
G. Other Litigation
In 1996, two lawsuits were filed in California state court
arising out of the alleged manipulation of the price of copper
between January 1, 1993 and July 1, 1996, by defendants
Sumitomo Corporation of America, Global Metals and
Minerals and Campbell. The suits were filed as class actions on
behalf of all persons who had purchased copper products,
defined to include concentrate, blister, anode and cathode,
between January 1, 1993 and July 1, 1996, and who at the time
of the purchases resided in a group of defined states, purchased
copper products from persons residing in one of those states or
purchased any copper for delivery in one of those states. The
actions were settled. In connection with the settlement,
BHP/Magma, Asarco and Gerald filed proofs of claim that were
allowed in the following amounts: 1) BHP/Magma,
$1,167,298,575.00; 2) Asarco, $543,128,847.00; and 3)
Gerald, $95,790,545.61. BHP/Magma received a payment
from the settlement fund of $1,768,148.22; Asarco received
$822,696.37; and Gerald received $145,097.31.
In 1996, a lawsuit was filed by futures traders in the United
States District Court for the Southern District of New York
arising out of the alleged manipulation of the price of copper
futures and options contracts between June 20, 1990 and June
69a
19, 1996, by defendants Sumitomo Corporation of America,
Global Metals and Minerals and David Campbell.
OPINION
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides a
federal cause of action to “any person who shall be injured in
his business or property by reason of anything forbidden in the
antitrust laws.” Plaintiff contends that it fits within the
provisions of this statute: it has suffered injury to its business
of manufacturing building wire (by having to pay higher prices
for the copper cathode and copper rod it purchased) as a result
of defendants’ violation of section 1 of the Sherman Act, 15
U.S.C. § 1, which forbids conspiracy in restraint of trade. A
review of the text of § 15 would suggest that plaintiff is correct.
In reality, however, the language of the Clayton Act is not as
broad as it seems. For practical reasons, it has been narrowed
by the Supreme Court in an effort to effectuate the
congressional intent that the act be construed in light of its
common law background. See Associated General Contractors
of California, Inc. v. California State Council of Carpenters,
459 U.S. 519, 531, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983)
(quoting Senator Sherman’s statement that proposed law “does
not announce a new principle of law, but applies old and well
recognized principles of the common-law to the complicated
jurisdiction of our State and Federal Government”) (21
Cong.Rec. 2456). See also National Society of Professional
Engineers v. United States, 435 U.S. 679, 687-88, 98 S.Ct.
1355, 55 L.Ed.2d 637 (1978): “Congress, however, did not
intend the text of the Sherman Act to delineate the full meaning
of the statute or its application in concrete situations. The
legislative history makes it perfectly clear that [Congress]
expected the courts to give shape to the statute’s broad mandate
by drawing on common-law tradition.” See also Blue Shield of
Virginia v. McCready, 457 U.S. 465, 477, 102 S.Ct. 2540, 73
L.Ed.2d 149 (1982) (“It is reasonable to assume that Congress
70a
did not intend to allow every person tangentially affected by an
antitrust violation to maintain an action to recover threefold
damages for the injury to his business or property”).
After 111 years of interpretation, certain principles have
evolved to define antitrust standing, which is distinct from
Article III standing. In both instances, the plaintiff must plead
an injury in fact but in antitrust cases, “the court must make the
further determination whether the plaintiff is a proper party to
bring a private antitrust action.” Associated General
Contractors, 459 U.S. at 535 n. 31, 103 S.Ct. 897. Plaintiffs
must show not only that they have suffered the type of injury
that the antitrust laws were intended to prevent and that their
injuries are a result of defendant’s unlawful conduct, see, e.g.,
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
488, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), but that they are in
the best position to vindicate the alleged violation because their
injuries are neither indirect nor secondary in nature. See
Associated General Contractors, 459 U.S. at 537-45, 103 S.Ct.
897. In determining which plaintiffs are best placed to sue,
courts consider the causal connection between the alleged
antitrust violation and the harm to the plaintiff and the
defendant’s intent to cause the harm; whether the injury was of
a type the laws were designed to prevent; the directness or
indirectness of the alleged injury; the existence of more direct
victims who can assert a claim against the wrongdoer; the
nature of the plaintiff's injuries (whether they are speculative
or determinable); and the risk of duplicative recoveries or
complex apportionment of damages. See id.
Application of these factors to plaintiff's situation leads
ineluctably to the conclusion that plaintiff is not in a position to
sue these defendants for antitrust violations. The question is
not a close one, although plaintiff makes a modest effort to
characterize it as one. As the undisputed facts show, it is only
in the most generalized fashion that the manipulation of the
. ~
Tla
futures market can be said to affect the cash markets. That there
is some effect is undisputed. What that effect might be in any
particular transaction is another matter altogether. The number
of exchange- based pricing formulas, the laws of supply and
demand and the premiums and discounts that reflect supply and
demand make it exceedingly difficult, if not impossible, to trace
the influence of the futures prices. The physical copper market ~
and the copper futures markets do not move in lockstep. As a
consequence, there is only an attenuated causal connection
between the harm to plaintiff and defendants’ violation; the
alleged injury is not a direct one.
Moreover, plaintiffs theory of recovery rests on
extraordinarily complex damage computations and a high risk
of duplicative recovery, in violation of the principles espoused
by the Supreme Court in Jilinois Brick Co. v. Illinois, 431 U.S.
720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), and Hanover Shoe,
Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct.
2224, 20 L.Ed.2d 1231 (1968). In Illinois Brick, the defendants
were manufacturers of concrete block that had engaged in price
fixing. Plaintiffs were governmental entities that had purchased
buildings built by general contractors, who in turn had bought
the block from the manufacturers; plaintiffs were not the direct
purchasers of the overly expensive concrete blocks, as they
might have been under a different building arrangement. The
question for the Court was whether indirect purchasers such as
plaintiffs should be able to sue in such a situation. Earlier, in
Hanover Shoe, the Court had held that a manufacturer charged
with violating the antitrust laws could not use as a defense the
fact that the plaintiff customer had passed on illegal
overcharges to its own customers. As the Court noted in
Illinois Brick, in rejecting the passing on defense in Hanover
Shoe, it had been unwilling “to complicate treble-damages
actions with attempts to trace the effects of the overcharge on
the purchaser’s prices, sales, costs, and profits, and of showing
~
72a
that these variables would have behaved differently without the
overcharge.” Illinois Brick, 431 U.S. at 725, 97 S.Ct. 2061. In
addition, the Court had been concerned that “unless direct
purchasers were allowed to sue for the portion of the
overcharge arguably passed on to indirect purchasers, antitrust
violators ‘would retain the fruits of their illegality’ because
indirect purchasers ‘would have only a tiny stake in the lawsuit’
and hence little incentive to sue.” Jd. at 725-26, 97 S.Ct. 2061
(quoting Hanover Shoe, 392 U.S. at 494, 88 S.Ct. 2224).
Illinois Brick forced the Court to decide two questions:
whether it should apply the rule announced in Hanover Shoe
equally to plaintiffs and defendants and whether it had reached
the right conclusion in that case when it held that it was only
the overcharged direct purchaser that was the party “injured in
his business and property” within the meaning of § 4 of the
Clayton Act, rather than others in the chain of manufacture and
distribution. It answered yes to both questions. The rule
announced in Hanover Shoe operated to bar plaintiffs from
using the passing on theory offensively, that is, by arguing that
they had been injured by the general contractors’ passing on to
them of the overcharge on the concrete blocks, and the rule
enhanced the effectiveness of the antitrust treble-damages
action by precluding indirect purchasers down the distribution
chain from suing to recover the fraction of the overcharge
allegedly passed on to them. See Illinois Brick, 431 U.S. at
728-29, 97 S.Ct. 2061.
Two policy concerns animated the Court’s decision in //linois
Brick: the transformation of “treble-damages actions into
massive multiparty litigations involving many levels of
distribution and including large classes of ultimate consumers
remote from the defendant,” see id. at 745, 97 S.Ct. 2061 and
the enormity of the task that courts would face in attempting to
determine damages incurred at each level of distribution. See
Phillip E. Areeda & Herbert Hovenkamp, II Antitrust Law 4
73a
346c (Rev. ed. 1995) (“The point to be drawn from Jilinois
Brick and its predecessor, Hanover Shoe, is the practical one
that the effectiveness of the antitrust remedy would be undercut
if the task of tracing antitrust injuries and determining damages
becomes overly complex.”).
Even when the damages calculation is not complex, the Court
has refused to waver from its position that the purchaser that
buys directly from the alleged antitrust violator is the only party
that can assert antitrust standing. In Kansas v. UtiliCorp
United, Inc., 497 U.S. 199, 110 S.Ct. 2807, 111 L.Ed.2d 169
(1990), for example, the Court refused to recognize antitrust
standing for customers of utility companies, despite the fact the
utility companies had passed on to those customers 100% of the
alleged overcharges for gas. The Court acknowledged that the
economic assumptions underlying Jilinois Brick might not
apply with equal force in all cases and might even be disproved
in a particular case, but confirmed its belief that “ample
justification exists for our stated decision not to ‘carve out
exceptions to the [direct purchaser] rule for particular types of
markets.’ Jilinois Brick, 431 U.S. at 744, 97 S.Ct. 2061. The
possibility of allowing an exception, even in meritorious
circumstances, would undermine the rule.” UtiliCorp United,
497 US. at 216-17, 110 S.Ct. 2807.
Plaintiff Ocean View has not alleged that it bought more than
a relatively tiny percentage of copper cathode or copper rod
from one of the defendants. It has adopted a different
approach, which is to argue that the wrongdoing of the
defendants had as its object the manipulation of prices on the
futures market that served as the index for prices on the
physical market. Because copper cathode is the only form of
copper that is the subject of futures contracts and because
defendants concentrated their efforts to manipulate the physical
market for copper by stockpiling huge supplies of copper
cathode and not raw copper or concentrate, plaintiff argues that
—
74a
the relevant “market” for antitrust purposes is the copper
cathode market. This market definition is purposeful. By
limiting the antitrust focus to the copper cathode market,
plaintiff can call itself the “first purchaser” in the market. As
the first purchaser, it contends, it was directly injured by the
manipulation of prices for copper cathode and thus has standing
to sue any supplier that made its own cathode. It avoids the
Illinois Brick concern of duplicative recoveries because it is the
first entity to pay an overcharge tied to copper cathode prices,
as contrasted with purchasers of pre-cathode copper. Each time
that plaintiff bought cathode or rod in the relevant market
during the period of defendants’ manipulation, it had to pay a
higher price for copper cathode or rod than it would have paid
had it not been for defendants’ manipulation of the futures
markets in copper cathode.
Plaintiff agrees that it cannot be deemed the first purchaser
when it bought cathode from suppliers that had not made the
cathode themselves. In that circumstance, it concedes, its
purchase of the cathode would not be the first time the cathode
had been sold; therefore, plaintiff would not be entitled to
damages as the first purchaser.
Plaintiff maintains that the first purchaser of a product at a
manipulated price is the equivalent of a direct purchaser
because it is the first to feel the effects of the conspirators’
efforts to manipulate the prices of the product. Such a
purchaser is best positioned to assert antitrust claims resulting
from the conspirators’ actions. Moreover, plaintiff argues, it
makes no difference to the assertion of standing that it would be
difficult to prove exactly how much of the cathode plaintiff
purchased had not been the subject of a previous purchase by
the supplier because the quantities can be estimated. Plaintiff
does not say exactly how the estimate would be made.
Presumably, plaintiff would determine for any given year (or
other time period) how much cathode Supplier A made and
75a
how much Supplier A bought from other suppliers and then
apply the percentage of purchased cathode to the percentage of
cathode Supplier A sold to plaintiff in that year. This would
produce an estimate of the amount of cathode plaintiff bought
from Supplier A in a given year that had never been purchased
before. Plaintiff admits that it has no evidence at the present
time that would enable it to make these estimates but denies
that this is any problem. Its discovery to date has been limited
to standing only; when the discovery limits are lifted, it Says,
it will subpoena the evidence it needs from its suppliers.
The flaws in plaintiff's theory are manifold. First, there is no
Support in the case law for plaintiffs theory of the first
purchaser as the equivalent of the direct purchaser under
Illinois Brick. In all probability, plaintiff is trying to adapt its
claim to the concept of “umbrella standing” relied upon in
Sanner v. Board of Trade, 62 F.3d 918 (7th Cir.1995). In
Sanner, individual soybean farmers sued the Chicago Board of
Trade, alleging that the board had violated the antitrust laws by
passing a regulation requiring holders of long term positions in
soybean futures to liquidate them according to a specified
schedule, as a means of bringing down the cash price of
soybeans. The farmers alleged that they had suffered injury
when they tried to sell their soybean crops because of the
board’s action, which had depressed the price of soybeans. The
court of appeals held that the district court had acted
prematurely in dismissing the farmers’ claim. The district court
had held that the cash and futures markets were distinct
markets; the farmers had not participated in the futures
markets; the causal link between the cash value of soybeans
and the manipulation of the futures market was too attenuated:
the nature of the damages was too speculative; and other
persons might in a better position to sue. The court of appeals
disagreed with these holdings, finding the farmers’ allegations
sufficient to withstand a motion to dismiss. As to the alleged
76a
distinctions between the cash and futures markets, the farmers
had alleged both that the board had acted with the intent of
prompting a downturn in the cash market for soybeans and that
the two markets moved in lockstep because they involved the
same commodities to be delivered immediately or sometime in
the future. As to damages, the court of appeals was satisfied
that the damages calculation would not be particularly difficult:
“Both parties can offer proof concerning the extent to which a
decline in the cash market price of soybeans (an objectively
verifiable matter) was or was not attributable to the liquidation
of positions prompted by the [board of trade’s] Resolution.” Jd.
at 930.
Sanner does not provide support for plaintiff's assertion of
standing, now that the record has been developed and the case
is before the court on motions for summary judgment. Sanner
was decided on a motion to dismiss. At that stage, it was
proper to accept the plaintiff farmers’ allegation that the cash
and futures soybean markets moved in lockstep. (For the same
reason, it was proper to accept plaintiff's allegation in this case
that “a manipulation of the price of copper futures on the
COMEX and/or the LME would directly and predictably
correlate with a manipulation of copper prices on the cash
market,” Plt.’s Am.Compl., dkt. # 155, § 21, when deciding
defendants’ motion to dismiss the complaint. See Jn re Copper
Antitrust Litigation, 98 F.Supp.2d at 1050.) It was evident,
however, that the plaintiffs in Sanner would be unable to
succeed on their claim if they could not prove their allegations
about the way in which the markets worked. In this case, the
undisputed facts show that the relationship between the futures
market and the physical market is not direct and predictable;
many factors other than the futures prices enter into the price
calculations for physical copper. Cf In re Beef Industry
Antitrust Litigation, 710 F.2d 216 (Sth Cir.1983) (on motion to
dismiss, allegations of “rigid formula pricing” tied to daily
77a
reports of beef prices sufficient to proceed; on motion for
f summary judgment, defendants’ “overwhelming proof,” id. at
i 219, that factors other than daily price reports influenced beef
pricing and plaintiffs’ failure to raise genuine issue in response
i supported grant of summary judgment for defendants); Jn re
Coordinated Pretrial Proceedings in Petroleum Products
; Antitrust Litigation, 691 F.2d 1335 (9th Cir.1982) (risk of
double recovery and unacceptable level of speculation and
complexity of damages calculation doomed retail gasoline
purchasers’ assertion of umbrella standing when purchasers
bought from non-defendants).
It is telling that plaintiff ignores the obvious problem of
characterizing the market as a cathode market, when the
undisputed facts show that rod is made from cathode.
Therefore, any time plaintiff bought rod rather than tolling it,
it was buying previously purchased cathode that had been
turned into rod. Because most of its purchases were of rod,
plaintiff's “cathode market” theory is not even relevant to its
situation.
a Pe TDR OR PM Teh 4 ASL RG Rg 0 et v ant he
Even if, as plaintiff argues, it is entitled to sue because it was
injured directly by defendants’ antitrust violations on each
occasion that it bought copper cathode or rod at a price tied to
the metals exchanges, it must show that allowing it to do so
would not result in duplicative recovery or an overly complex
determination of damages. It cannot make such a showing.
Plaintiff has the initial challenge of showing that it was the first
purchaser of copper cathode. As it has conceded, in many
instances it could not make this showing. It bought regularly
from suppliers such as traders and semi- fabricators that had to
purchase copper cathode for sale to plaintiff because they had
no facilities for making their own.
Even when plaintiff bought from producers, it could not be
sure that the producers were selling their own product or
78a
purchased product. Plaintiff has no documentation to prove the
source of any copper cathode it purchased or any evidence from
which it might estimate what percentage of the cathode it
purchased had been purchased previously. It is no answer for
it to say that such evidence can be obtained in the future or that
it need not be produced at this time because it relates only to
damages. The missing evidence is critical to plaintiff's
assertion of standing, since among the elements of antitrust
standing it would have to prove at trial are that a damage
calculation would not be impossibly complex and that it would
be possible to determine plaintiffs damages without
duplicating the damages of any other potential plaintiff. On a
motion for summary judgment, the party opposing the motion
must reveal its hand. It must adduce evidence sufficient to
- create a genuine issue as to each material fact; it cannot resist
the motion simply by suggesting it will have controverting
evidence at trial. See, e.g., Schacht v. Wisconsin Dept. of
Corrections, 175 F.3d 497, 504 (7th Cir.1999).
Of course, this missing evidence is only one of many
problems plaintiff has. Even with the evidence that would
allow it to estimate what percentage of copper cathode it bought
“first,” estimations would not solve the more intractable
problem of determining the overcharge that plaintiff paid in any
given transaction. As I understand plaintiff's theory of
computing damages, plaintiff would begin with an estimate of
the percentage of copper cathode and rod it bought in a given
time period and then attempt to disentangle the factors that
went into the purchase price of that copper to determine the
portion that was the result of illegal manipulation. If this is the
damage calculation process, it leaves unanswered a myriad of
questions. What price would plaintiff use as its starting point?
Would it take an average price paid for all the copper over the
time period (since it could not know as to any given day or any
particular transaction whether the cathode it was buying had
79a
been purchased previously)? If so, how could it trace an
average price to any indexed price, when the indexed prices on
the Comex alone change from day to day and include 24
variations each day? The difficulty, if not the absurdity, of
trying to calculate damages is obvious.
Not only is the damage calculation the kind that J/inois Brick
and Hanover Shoe have ruled inimical to the policies
underlying the antitrust laws, any damages awarded to plaintiff
would inevitably be duplicative of damages due others. There
is nO way to determine which cathode should be considered a
“first purchase.” Because there is not, there is no way to
determine whether another player in the copper market might
7 be entitled to damages for having paid a higher price on the
2 same copper. There is no simple or straightforward way to
d analyze a particular purchase price and determine whether it
4 represents an overcharge attributable to defendants’
manipulation or the seller’s passing on of the original
overcharge, with periaps a second overcharge resulting from
indexing the second sale to the futures market. As in Jn re
Copper Antitrust Litigation (Loeb Industries v. Sumitomo
Corp.), 196 F.R.D. 348, 357 (W.D.Wis.2000), “the
complexities of the copper transactions in which plaintiffs
engaged made it ... difficult to determine whether they ... were
injured directly by defendants’ antitrust violations and not just
by the passing on of prior overcharges tied to the futures
market.”
wren kc
PD le RG el RAL DA PS IIL CR
Sanner, 62 F.3d 918, provides no help to plaintiff in this
regard. In Sanner, the plaintiffs were in fact the first line of
persons injured: presumably they had grown the soybeans that
were the subject of the price manipulation. There was no
evidence that they were selling soybeans they had purchased
from others or that they were re-selling beans to other farmers
(at indexed prices) who were also seeking damages for the price
manipulation.
80a
The availability of hedging and its wide use are other reasons
to find that plaintiff was not the first to incur injury because of
manipulation of the futures prices for cathode. (It is worth
noting that in Sanner, the court never discussed the possibility
of hedging and its effect on plaintiffs’ assertion of umbrella
standing, although it is a common practice in all commodities
markets.) The routine use of hedging by suppliers of cathode
and other copper products means that most of the copper that
was sold to plaintiff had been the subject of ahedge. Assuming
that plaintiff's allegations are correct and that defendants were
manipulating the futures markets throughout this period, the
market price at which a supplier hedged its future sales of
copper would have been an artificial one that caused the
supplier injury long before it shipped copper to plaintiff. To the
extent that the supplier passed on the artificial price, plaintiff s
damages would be duplicative of its supplier’s, who could
assert its own claim for overcharges on the same copper. In
fact, several of plaintiff's suppliers have done just that in the
lawsuits filed in California against defendants Sumitomo
Corporation of America, Campbell and Global and have
recovered money on their claims. Plaintiff argues that the
California lawsuits are separate matters, based on different
claims and brought under a wholly different law that allows
recovery up and down the distribution chain. Whether or not
plaintiff is correct about the lack of overlap between this suit
and the California ones, the fact remains that allowing plaintiff
to sue for damages that might have been incurred by others
higher up the distribution chain violates the J/linois Brick and
Hanover Shoe rule denying standing in situations in which
there is a serious risk of multiple liability. More important, the
assertion underscores the difficulty of unraveling the tangled
skein of copper transactions to determine the source of the
copper and how the purchase price was derived.
8la
At the outset of its brief, plaintiff expressed concern that if it
were not granted standing, no potential plaintiffs could sue
unless they “could prove to a mathematical certainty that
whatever copper cathode they purchased contained only copper
that their vendor itself mined,” Plt.’s Mem. in Response, dkt. #
384, at 1, and that if defendants’ view is adopted by the court,
defendants would have found “the perfect, victimless, crime, or
at the very least, a crime whose victims are without remedy.”
Id. at 4. It is true that courts are to take into consideration the
existence or non-existence of more direct victims who can
assert a claim against a wrongdoer, see Associated General
Contractors, 459 U.S. at 540-41, 103 S.Ct. 897, but that is only
one of the factors to be weighed in the balance. In itself, it is
not sufficient to provide standing if the other factors do not
point toward the same conclusion. In any event, other plaintiffs
do exist. They include not only the entities who are part of the
class action in federal court in New York, but presumably those
who bought copper directly from defendants at a
supracompetative price.
Plaintiff is not suing to recover on that basis, even though it
did buy copper directly from defendant Sumitomo Corporation
of America at one period in 1992. It has never based any
demand for relief on direct sales from Sumitomo.
I conclude that plaintiff has not adduced evidence sufficient
to create a genuine issue that it has antitrust standing to sue
defendants. Therefore, I will grant defendants’ motions for
summary judgment and deny _ plaintiff's. With this
determination, it is unnecessary to address the Morgan
defendants’ motion to dismiss plaintiff's complaint for failure
to state a claim under Fed.R.Civ.P. 12(b)(6) on the ground that
plaintiff failed to allege that these defendants participated
directly in any transaction in violation of the antitrust laws.
82a
Plaintiffs state law claim under Rhode Island law fails for
the same reasons as the federal law claim because the Rhode
Island Antitrust Act is “construed in harmony with judicial
interpretations of comparable federal antitrust statutes insofar
as practicable, except where provisions of this chapter are
expressly contrary to applicable federal provisions as
construed.” R.I.Gen.Laws § 6-36-2(b). Nothing in the Rhode
Island antitrust laws is contrary to the Supreme Court’s
interpretation of the Sherman Act in Illinois Brick, 431 U.S.
720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).
Plaintiff has asked that its state law claim be dismissed
without prejudice but it has offered no argument to support its
request or cited any provision of Rhode Island case law or
statutes that would suggest that the state’s laws are construed
differently from federal laws with respect to antitrust standing.
There is no reason to allow this matter to proceed in state court
when there is no apparent basis on which it could succeed.
Before ending this opinion, I want to comment on the
excellence of the briefing and the presentation of the proposed
findings of fact. It is not often that courts have the pleasure of
working with such well prepared materials. Counsel are to be
commended for their work.
ORDER
IT IS ORDERED that the motion for summary judgment of
plaintiff Ocean View Capital, Inc., f/k/a Triangle Wire &
Cable, Inc. is DENIED; the motions for summary judgment
filed by defendants Sumitomo Corporation of America,
Sumitomo Corporation, Sumitomo Futures Corporation, Global
Minerals and Metals Corporation, David Campbell, Credit
Lyonnais Rouse, J.P. Morgan & Co., Incorporated, and Morgan
Guaranty Trust Company of New York are GRANTED on all
of plaintiff's federal and state claims; and the motion to
dismiss filed by defendants J.P. Morgan & Co., Incorporated
83a
and Morgan Guaranty Trust Company of New York is
DENIED as moot. The clerk of court is directed to enter
judgment for all defendants in cases 99-C-0801-C and
00-C-0528-C and close these cases.
153 F.Supp.2d 996, 2001-2 Trade Cases P 73,422
APPENDIX C
DISTRICT COURT OPINION
United States District Court,
W.D. Wisconsin.
VIACOM, INC., as successor by merger to CBS Corp. (f/k/a
Westinghouse Electric Corp.), and EMERSON
ELECTRIC CoO.,
Plaintiffs,
v.
SUMITOMO CORPORATION, SUMITOMO
CORPORATION OF AMERICA, GLOBAL MINERALS
AND METALS CORPORATION, R. DAVID CAMPBELL,
and CREDIT LYONNAIS ROUSE, LTD.,
Defendants.
M.D.L. Docket No. 1303
No. 99-C-0621-C
OPINION AND ORDER
~ CRABB, District Judge.
Plaintiffs Viacom, Inc. and Emerson Electric Co. brought this
civil action against defendants Sumitomo, Inc., Sumitomo
Corporation of America, Global Minerals and Metals
Corporation and Credit Lyonnais Rouse under §§ 4 and 12 of
the Clayton Act, 15 U.S.C. §§ 15 and 26, for violation of § 1 of
the Sherman Act, 15 U.S.C. § 1. Plaintiffs contend that
defendants conspired to raise the price of copper to artificially
high prices by manipulating the copper futures market on the
London Metal Exchange and the Comex division of the New
York Mercantile Exchange and through the acquisition of
warrants for physical copper cathode in the United States and
abroad. Plaintiffs have added claims against defendants for
violations of the Racketeer Influenced and Corrupt
85a
Organizations Act (RICO), federal common law and various
state unfair trade practice and antitrust laws. The Sumitomo
defendants have settled this action, leaving only defendants
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