UPDATE 3-U.S. judge throws out aluminum price-fixing suit against banks

Sat Aug 30, 2014 10:41am EDT

(Adding Glencore reaction in 20th paragraph)

By Jonathan Stempel

NEW YORK Aug 29 (Reuters) - A U.S. judge on Friday dismissed antitrust litigation accusing Wall Street banks and commodity merchants including Goldman Sachs Group Inc and Glencore Plc of conspiring to drive up aluminum prices by reducing supply.

In an 85-page decision, U.S. District Judge Katherine Forrest in Manhattan said there was no indication the defendants intended to manipulate prices, though it was clear that their actions affected the aluminum marketplace.

"As cast in the complaints, this was an unintended consequence of rational profit maximizing behavior rather than the product of conspiratorial design," she wrote.

JPMorgan Chase & Co was also named in the lawsuit.

In the highest profile legal action to rock the base metals market in almost two decades, more than two dozen small aluminum fabricators alleged the defendants had colluded since May 2009 by hoarding metal in warehouses, driving up prices of industrial products from soft drink cans to airplanes.

According to the plaintiffs, this caused delays of up to 16 months to fill orders, leading to higher storage costs at warehouses, many in the Detroit area where Goldman Sachs' warehousing unit is based.

"Plaintiffs pretty much today have to have smoking gun evidence of a conspiracy or they cannot go ahead and try to prove that there was a conspiracy," said Robert Lande, a University of Baltimore professor specializing in antitrust law.

The dismissal comes just over a year after the first price-fixing case was filed. They were all combined before Forrest last December.

But complaints from companies such as Coca-Cola Co and MillerCoors LLC, which use aluminum to make cans, about long wait times to take delivery of base metals and inflated physical metal prices have plagued the London Metal Exchange, which oversees the warehouses, for years.

They say the companies have run a lucrative business building up big aluminum stocks, charging rent to store the metal and delivering it only at a limited rate.

The ruling will bring some relief to the banks and merchants, but they still face the threat of regulatory or Justice Department action following inquiries that began last year.

The controversy has also captured political and regulatory attention in the United States and Europe. U.S. regulators including the Department of Justice and Commodity Futures Trading Commission last year began looking into allegations of manipulation.

BANKS WELCOME DECISION

The judge said two groups of plaintiffs, commercial end users and consumer end users, lacked antitrust standing and could not bring their cases again.

Other plaintiffs were allowed to replead their cases.

These included "first-level" purchasers who buy aluminum for such things as bottled beverages and cabinets, and whose contract prices incorporated the storage costs.

They also included Mag Instrument Inc, which makes flashlights, and Agfa Corp, which makes lithographic plates for the newspaper and graphics industries.

Christopher Burke, a lawyer for Mag and Agfa, said his clients plan to replead their cases. Christopher Lovell, a lawyer for many of the plaintiffs did not immediately respond to requests for comment.

Among the warehouse defendants were Goldman's Metro International unit, Glencore's Pacorini Metals unit and JPMorgan's Henry Bath unit.

Goldman spokesman Michael DuVally and JPMorgan spokesman Brian Marchiony said their banks are pleased with the decision.

A Glencore spokesman said the company "welcomed" the ruling.

The dismissal comes just days after Forrest threw out the LME, now owned by Hong Kong Exchanges and Clearing Ltd , as a defendant in the case.

Plaintiffs had argued that the 137-year-old exchange abetted the scam by writing rules that made it possible and ignoring calls to change.

The legal battle alongside the regulatory scrutiny has had a deep lasting impact on the metals market.

Amid intensifying intense legal and regulatory scrutiny over the issue, Goldman put its warehouse subsidiary, Detroit-based Metro International Trade Services, which was named in the suit up for sale earlier this summer.

The case is In re: Aluminum Warehousing Antitrust Litigation, U.S. District Court, Southern District of New York, No. 13-md-02481. (Reporting by Jonathan Stempel in New York; Additional reporting by David Ingram and Josephine Mason in New York, and Neha Dimri in Bangalore; Editing by Lisa Shumaker)