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A district court properly dismissed attempted monopolization claims against a producer of untreated hot rolled steel because other manufacturers could easily jump into the market in response to any substantial rise in price by a potential monopolist, according to a July 15 opinion from the U.S. Court of Appeals for the Eleventh Circuit affirming summary judgment against Sherman Act §1 and § 2 claims (Gulf States Reorganization Group Inc. v. Nucor Corp., 11th Cir., No. 11-14983, 07/15/13).
Gulf States Reorganization Group, Inc. (the Group) was formed in 1999 to acquire and operate the assets of bankrupt Gulf States Steel, Inc.
After negotiations with the bankruptcy trustee, the bankruptcy court issued an order requiring sale of the assets to the Group unless another party made a higher bid, which would trigger an auction. Upon hearing of the order, competing steel manufacturer Nucor Corp. joined Casey Equipment Corp. to form a shell entity to bid on the assets for resale, Gadsden Industrial Park LLC.
Gadsden bid on the assets at auction and won because the Group's higher bid was non-comforming. Gadsden sold the assets to an Asian buyer for $18 million and made $12 million net on the sale. Gadsden kept the land and transformed it into an industrial park.
Upon learning that Nucor and Casey were behind Gadsden's bid, the Group sued all three, alleging that they contracted and combined in violation of Sherman Act §1, 15 U.S.C. §1, to purchase the steel-producing assets of Gulf States to keep it from competing in the black hot rolled coil steel market. The Group further alleged that Nucor's purchase and sale of the assets created a dangerous probability that it would obtain monopoly power over market in the Southwest United States, which, the Group contended, was attempted monopolization in violation of Sherman Act§2, 15 U.S.C. §2..
After the district court dismissed the complaint, the Eleventh Circuit determined that the Group had stated a cognizable antitrust injury and thus had standing to bring suit. Gulf States Reorganization Group, Inc. v. Nucor Corp., 466 F.3d 961, 966-68 (11th Cir. 2006).
On remand, the district court appointed James F. Rill, of the Washington, D.C., office of Baker Botts LLP, as Special Master and referred certain matters to him for report and recommendation.
In his first such report, Rill recommended summary judgment in favor of Casey and Gadsden, reaffirming that judgment in a second report. Shortly thereafter, the Group resolved all issues between it and those two defendants. In his third and fourth reports, Rill recommended that Nucor be awarded summary judgment first as to the §1 and §2 conspiracy claims, and then as to all claims.
The district court adopted Rill's reports and recommendations in their entirety and granted summary judgment against the Group.
The Group appealed the summary judgment granted on behalf of Nucor. Among other attacks, the Group maintained that the district court improperly rejected its market definition of “black hot rolled coil steel” because the court reasoned that steel producers currently making pickled and oiled steel could simply shorten their steel processing and turn out the unfinished product if prices for that product increased.
Judge Adalberto Jordan, joined by Judges Gerald B. Tjoflat and Edward Carnes, affirmed summary judgment in favor of Nucor.
The court specifically reviewed the district court's determination that the Group failed to define a proper relevant product market, because it failed to consider the easy cross-elasticity of supply between pickled and oiled steel and black hot rolled coil.
Basically, the court recapitulated, pickled and oiled steel is just black hot rolled coil steel that has been bathed in acid and oiled. While the Group steadfastly argued that pickled and oiled steel is not the equivalent of black hot rolled coil steel from the perspective of purchasers, the court explained that “this assertion misses the point.”
From the production end, any company currently producing pickled and oiled steel could easily switch and produce black hot rolled coil steel at little or no cost. In fact, black hot rolled steel is just the unfinished product of pickled and oiled steel.
Where many producers can jump in and undermine a monopolist's attempt to raise prices, the court said citing to Spectrofuge Corp. v. Beckman Instruments, Inc., 575 F.2d 256, 5th Cir. 1978), the Group's product market should have included the pickled and oiled steel producers who could just skip a step or two on their production lines and turn out competing black hot rolled coil steel if Nucor succeeded in raising price.
“In sum, the Group's definition of the product market is too restrictive, for it refuses to acknowledge that pickled and oiled steel manufacturers could (and likely would) enter the fray in order to enrich themselves on the inflated prices of black hot rolled coil steel,” the court concluded. Since that would “sap Nucor's potential monopoly power,” the court found that flaw in the Group's market definition “fatal to the attempted monopolization claim under §2.”
The remainder of the district court's adoption of special master Rill's report the court affirmed without comment.
Counsel for appellant: Philip Clark Jones, Greenburg Spence & Taylor, PC, Rockville, Md.; Ralph Kenneth Strawn, Jr., Henslee Robertson Strawn & Knowles, LLC, Gadsden, Ala.; counsel for appellee: Bert Walter Rein, John B. Wyss, Joshua W. Abbott, and David Mark Renaud, Wiley Rein, LLP, Washington, D.C.; Joseph W. Carlisle, Gilpin Givhan, PC, Birmingham, Ala.; Robert Marcus Givhan and Clark R. Hammond, Johnston Barton Proctor & Rose, LLP, Birmingham, Ala.
Text of the court's decision is at http://www.bloomberglaw.com/public/document/Gulf_States_Reorganization_Gro_v_Nucor_Corporation_Docket_No_1114 -- at Bloomberg Law's website.
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