US Federal District Judge Kevin McNulty, Martin Luther King Courthouse, Newark, NJ.
US Federal District Judge Kevin McNulty, Martin Luther King Courthouse, Newark, NJ. (Carmen Natale)

A $58 million antitrust suit, claiming Chinese companies conspired to fix prices for the mineral magnesite, was dismissed July 24 by a Newark federal judge who found that the plaintiffs lacked statutory standing to sue.

Brought on behalf of U.S. purchasers of magnesite, the suit claims that 16 Chinese producers of the product formed cartels to restrain competition and raise prices, in violation of the Sherman Antitrust Act.

The named plaintiffs are two U.S. companies that purchase magnesite—Animal Science Products Inc., of Nacogdoches, Texas, and Resco Products, of Pittsburgh, Pa. Animal Science is the representative for a class of indirect purchasers and Resco is the representative for a class of direct purchasers. The suit seeks injunctive relief for the indirect purchasers and monetary damages for the direct purchasers.

Nine of the 16 Chinese companies named as defendants did not answer the complaint and are not participating.

U.S. District Judge Kevin McNulty of the District of New Jersey granted a motion by two of the defendants to dismiss the case after he undertook an analysis sua sponte of the plaintiffs’ standing to bring the antitrust action.

McNulty said the plaintiffs have pleaded the minimum prerequisites of a Sherman Act violation by alleging that a cartel fixed prices. But the requirement that a plaintiff be a direct purchaser is a “bright-line rule” of antitrust standing, he said.

He said Resco, which represents a class of direct purchasers, buys magnesite through brokers that are not parties to the case and therefore lacks standing.

McNulty cited the U.S. Supreme Court’s 1977 ruling in Illinois Brick v. Illinois, which “limits antitrust actions to suits brought by parties that are the direct purchasers of the product.”

Resco said it purchases magnesite mainly through brokers, although it made a single direct purchase in 2004 and in 2006 it purchased a company, Worldwide Refractories, that also made a direct purchase of magnesite in 2004.

One of its brokers, Possehl Inc., of Park Ridge, N.J., assigned to Resco its rights and interests in causes of action relating to magnesite brokered by Possehl and delivered to Resco. But Possehl did not establish that it was a direct purchaser of magnesite, McNulty said.

Resco’s claims about its single direct purchase, the direct purchase by Worldwide and the assignment by Possehl are not sufficient “to raise a right to relief above the speculative level,” McNulty said.

Resco sought to take advantage of the “co-conspirator exception” to the direct purchaser rule, which allows an indirect purchaser to sue if it can show the direct purchaser, or middleman, has entered into a price-fixing conspiracy with the manufacturer.

McNulty said Resco did not claim the defendants formed a “hub and spoke” conspiracy, in which the co-conspirators conspire with the named defendants. Rather, Resco alleged only that each defendant colluded with its co-conspirators to restrain competition.

Resco’s claims about its single direct purchase, the direct purchase by Worldwide and the assignment by Possehl are not sufficient “to raise a right to relief above the speculative level,” McNulty said.

The ruling marks the second time a district court judge has dismissed the case since it was filed in 2005.

In 2010, U.S. District Judge Garrett Brown Jr. found the court lacked jurisdiction under the Foreign Trade Antitrust Improvements Act to hear the case. The U.S. Court of Appeals for the Third Circuit reinstated the case in 2011, finding that the FTAIA imposed substantial limits on antitrust claims but did not raise a jurisdictional bar.

An estimated 500,000 metric tons of magnesite is imported into the United States from China each year, the suit says. The complaint says China has 45 percent of the world’s production of magnesite. The defendants have been able to raise the price of magnesite despite not having 100 percent of the market because they have lower costs than competitors and because China undervalues the yuan, making its exports to the United States cheaper than exports from other nations, the suit claims.

Magnesite, a naturally occurring carbonate form of magnesium, is used to line metallurgical or refractory furnaces, among other uses, the suit says.

According to the plaintiffs, after the price of magnesite declined in 1999, a group of 13 Chinese producers of the mineral formed the Jiyuan Magnesite Group, which established uniform prices for the mineral. Other Chinese magnesite producers formed a similar organization, Huaxia Magnesite Products Group, around the same time. As a result, the price of magnesite imported from China rose from $104 per metric ton in 1999 to $158 per metric ton in 2000.

Lawyers for the plaintiffs, David Stone and Robert Magnanini of Stone & Magnanini in Short Hills, N.J., and William Isaacson of Boies, Schiller & Flexner in Washington, D.C., did not return calls for comment on the ruling.

Shepard Goldfein of Skadden, Arps, Slate, Meagher & Flom in New York, who represented defendants China Minmetals and China National Minerals, declined to comment. Three other defendants—Sinosteel Corp., Sinosteel Trading Co. and Liaoning Jiayi Metals & Minerals Co.—are represented by lawyers at Kramer, Levin, Naftalis & Frankel in New York and Robinson, Miller & Wettre of Newark. They did not return calls for comment on the ruling.

Contact the reporter at ctoutant@alm.com.