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LME wins dismissal in aluminum antitrust suit

Keywords: Tags  London Metal Exchange, LME, lawsuit, antitrust, dismisssal, sovereign immunity, Katherine B. Forrest, aluminum warehouses

NEW YORK — A judge has dismissed the London Metal Exchange as a defendant in a U.S. antitrust lawsuit alleging manipulation of aluminum supplies to drive up prices on the grounds of sovereign immunity.

Judge Katherine B. Forrest of the U.S. District Court in New York said in an order that the LME is an organ of a foreign state and was not engaging in commercial activity when it allegedly manipulated the load-out rules for aluminum.

"The court grants the LME’s motion to dismiss based on sovereign immunity," the ruling stated, citing the Foreign Sovereign Immunities Act. "The court itself initially found this result somewhat surprising and counterintuitive. Nevertheless, it is dictated by the prevailing case law."

Forrest ruled that the plaintiffs cannot replead their case against the LME. The ruling does not affect other defendants, which include Baar, Switzerland-based Glencore Plc, New York-based Goldman Sachs Group Inc., New York-based JPMorgan Chase & Co. and their respective warehouse subsidiaries, as well as Hong Kong Exchanges & Clearing Ltd. (HKEx), the owner of the LME.

"The LME is pleased to have been granted immunity from the aluminum class-action lawsuits. The court has recognized the important regulatory function that the LME performs, and that the LME has a duty to the entire metals community to run a fair and orderly market," an LME spokeswoman said in a statement. "We continue to take action to manage queue-related issues in accordance with our obligations and we remain committed to do everything in our power to remedy these issues."

The LME was already being treated as a U.K. government agency whose decisions were subject to judicial review due to the litigation between itself and Moscow-based United Co. Rusal (UC Rusal), also related to warehousing.

Along with Goldman Sachs and JPMorgan, the LME asked a U.S. court in April to dismiss the class-action suit (, April 24). Glencore filed a motion asking the case be dismissed earlier in August (, Aug. 6).

The court’s initial reaction was that "the LME was an unlikely candidate for an organ of the U.K. government," Forrest said in the ruling.

"This view was based on the fact that the LME is a privately held and for-profit company and, while subject to extensive governmental regulation, is in that regard simply like many nongovernmental entities. However, the court’s review of the relevant case law provided a different, yet certain, answer," the ruling said.

The U.K. government does not require the LME to hire its staff or pay their salaries, nor is it the only regulated investment exchange in the commodities trade, Forrest ruled.

Yet the LME regulates its market and is supervised by a U.K. government agency, the Financial Conduct Authority (FCA), with U.K. law treating the LME’s activities regarding the warehousing load-out rules and practices as part of its public function, the ruling said.

"The court’s balancing of these factors tips decidedly in the direction of finding the LME an organ of the U.K. government," the ruling said.

The FCA submitted a letter to the court indicating its belief that the LME protects investors and ensures the orderly function of markets, Forrest said.

The court also needed to establish whether allegations that the LME entered a conspiracy with other entities to manipulate its rules on warehouse deliveries, to restrain supplies and increase aluminum prices, constituted commercial activity.

"The statute requires that the court look at the nature of the activity—not its purpose. Thus, the LME’s motivations for engaging in such behavior are of no concern to this court," the ruling said. "Put bluntly, under both the statute and the Supreme Court precedent, whether the LME manipulated its load-out rules to make more money is irrelevant to whether doing so was a ‘commercial’ activity."

The ruling said the LME’s warehouse load-out rules were a vital and necessary role in allowing the LME to regulate the aluminum market, and were not commercial in nature.

The exchange also is required to announce rule changes and allow for comment before implementation, and there also is a process for challenges, such as by UC Rusal in the U.K. High Court, the ruling said. 

A version of this article was first published by AMM sister publication Metal Bulletin.

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