A lawsuit filed against the London Metal Exchange (LME) that claimed it assisted firms such as Goldman Sachs and JPMorgan Chase & Co. in keeping aluminum prices artificially high has been dismissed in a case decided by the U.S. District Court, Southern District of New York.
In her ruling, Judge Katherine Forrest found that the LME, owned by Hong Kong Exchanges and Clearing Ltd. (HKEX), carries out some functions as an organ of the United Kingdom government and is therefore protected from lawsuits on sovereign immunity grounds.
“While not formed by the U.K. government, the LME is charged by statute with performing the decidedly public function of market regulation,” Forrest said in her decision. “The court itself initially found this result somewhat surprising and counterintuitive.”
The plaintiffs in the case included consumers of aluminum. Their suit, filed in August 2013, claimed that the aluminum that was being inventoried in warehouses was ultimately being taken off the market, which delayed delivery of some shipments for longer than one year.
A focal point of the suit has been the conduct involving a series of warehouses owned by Metro International, a Goldman Sachs subsidiary, in the Detroit area. In its suit, the plaintiffs said the Detroit area is where the alleged backlog of aluminum occurred.
The situation and its effect on aluminum scrap prices was among the topics of debate and discussion at the Aluminum Spotlight session at the 2014 Institute of Scrap Recycling Industries Inc. (ISRI) Convention & Exposition.
In their suit, the plaintiffs argued that the LME was not immune from the litigation because it entered into warehousing contracts for commercial purposes rather than regulatory ones.
The manufacturers accused the exchange of driving up prices in cooperation with Goldman, JPMorgan Chase & Co. (JPM) and their warehousing businesses to increase profit. The banks also have moved for dismissal from the case.
In its ruling, the court granted the LME’s motion to dismiss and dismissed all of the pending claims against it. The court also denied plaintiffs the ability to replead the claims against the LME.
The court has not yet issued a ruling on other motions to dismiss that HKEx and LME have filed, and they currently remain defendants in the litigation.
In a statement following the ruling, HKEx says its management continues to believe the claims are without merit and expects to continue to contest all allegations vigorously.
In her ruling, Forrest also threw out the suit against the Wall Street financial institutions and commodity handlers such as Glencore Plc. The judge said that while it was clear the actions of various defendants affected the aluminum market, there was no evidence showing that they intended to manipulate prices.