Pacific Steel Group v. Commercial Metals Company

Background

Pacific Steel Group alleged that Commercial Metals Company and its subsidiaries engaged in anticompetitive conduct in the rebar industry. Pacific Steel competes with CMC downstream in furnishing and installing rebar and sought to enter the upstream market by building a micro mill.

Pacific Steel alleged that CMC entered into an agreement with Danieli Corporation containing a 69-month geographic exclusivity provision. The provision barred Danieli from selling its proprietary micro mills to companies other than CMC within a 500-mile radius of Rancho Cucamonga, California. Pacific Steel alleged that this restriction blocked the most commercially feasible way for it and other potential competitors to enter the rebar-manufacturing market.

Pacific Steel also alleged that CMC Rebar, CMC Steel US, and Gerdau Reinforcing Steel sold furnishing-and-installation services below cost and as loss leaders. The amended complaint asserted Sherman Act claims, California Cartwright Act claims, California Unfair Practices Act claims, California Unfair Competition Law claims, and a claim for interference with prospective economic advantage.

Rule 12(b)(6) standard

CMC moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that it failed to state plausible claims for relief. At this stage, the court accepts well-pleaded factual allegations as true and views them favorably to the plaintiff, but does not accept conclusory allegations or unreasonable inferences.

Federal antitrust claims

The court held that Pacific Steel narrowly but plausibly alleged a relevant market for rebar manufacturing, CMC’s market power, and anticompetitive effects from the exclusivity provision. The court acknowledged substantial questions about Pacific Steel’s proposed geographic market, including its 500-mile boundary and its exclusion of suppliers located outside that area. But the court held that those issues involved factual questions better addressed at summary judgment or trial rather than on a motion to dismiss.

The court also held that Pacific Steel plausibly alleged that CMC’s agreement with Danieli could substantially restrict competition. Although competitors could theoretically build mini mills or build micro mills outside the restricted area, Pacific Steel alleged that mini mills were becoming commercially unviable and that transportation costs made entry from outside the area impractical. The court therefore denied CMC’s motion to dismiss the Sherman Act claims.

State-law claims

Because Pacific Steel adequately pleaded federal antitrust claims, the court exercised supplemental jurisdiction over related state-law claims. The court held that the Cartwright Act claims, the interference claim based on the CMC-Danieli agreement, and the Unfair Competition Law claims based on that agreement were adequately pleaded.

The court dismissed Pacific Steel’s predatory-pricing claims for lack of supplemental jurisdiction because those claims involved different markets, parties, contracts, and conduct from the federal claims. The court dismissed those claims with leave to amend. The court also dismissed the Unfair Competition Law claims based on predatory pricing for the same reasons as the California Unfair Practices Act claims.

Disposition

The court granted in part and denied in part CMC’s motion to dismiss. The motion was granted only as to Pacific Steel’s predatory-pricing claims, and Pacific Steel was given leave to amend those claims within 21 days. Pacific Steel could not add new causes of action or defendants in an amended complaint. The motion was denied as to the remaining claims that the court found adequately pleaded.