Pacific Steel Group v. Commercial Metals Company

Background

Pacific Steel Group sued Commercial Metals Company and its subsidiaries, collectively called CMC, over CMC’s exclusivity agreement with Danieli Corporation. Danieli had developed MiDa continuous-continuous micro-mill technology, which produces rebar directly rather than producing billets that must later be reheated and rolled. Pacific Steel alleged that the agreement prevented Danieli from selling MiDa or MiDa-S mills to other companies within a 500-mile radius of CMC mills, including the area where Pacific Steel planned to build a mill.

Pacific Steel alleged that the exclusivity arrangement blocked it and other potential entrants from what it viewed as the only economically feasible technology for entering the relevant rebar-manufacturing market. The alleged violations occurred from August 2020 through December 2021. Pacific Steel’s claims included violations of Sections 1 and 2 of the Sherman Act, California’s Cartwright Act, California’s Unfair Competition Law, and a claim for interference with prospective economic advantage.

The parties filed cross-motions for summary judgment. Summary judgment is a procedure that allows a court to decide claims without a trial when the evidence shows no genuine dispute about an important fact and the moving party is entitled to judgment under the law.

Federal antitrust claims

The court applied the Rule of Reason, a fact-specific framework used to determine whether a restraint’s actual effect on competition is harmful. Under that framework, Pacific Steel first had to show a substantial anticompetitive effect. CMC then could offer a procompetitive justification, after which Pacific Steel would have to show that the claimed benefits could reasonably be achieved through less anticompetitive means.

For Pacific Steel’s Section 1 claim, the court rejected Pacific Steel’s request for summary judgment based solely on direct evidence. The court held that the agreement was a vertical restraint between a supplier, Danieli, and a customer, CMC, and that the record did not show the arrangement was so obviously anticompetitive that the court could skip defining the relevant market. The court also found a factual dispute over whether Pacific Steel’s proposed mill would have increased the overall supply of rebar and affected market prices. Pacific Steel offered evidence that its proposed mill would have added substantial production, while CMC offered evidence that Pacific Steel primarily planned to use the rebar internally rather than sell it in the market.

The court also denied summary judgment based on indirect evidence. Pacific Steel proposed a geographic market consisting of suppliers within 500 miles of the planned mill site near the greater Los Angeles basin. CMC argued that the proposed market was too narrow because customers purchased rebar from distant suppliers. Pacific Steel offered evidence concerning shipping distances, CMC’s internal documents, freight costs, and an analysis using the hypothetical-monopolist test. The court found that this competing evidence created a factual dispute about the proper geographic market.

Because the geographic market was disputed, the parties’ competing market-share analyses also could not be resolved on summary judgment. CMC’s expert calculated a 32.9% market share using a market that included suppliers from several states. Pacific Steel’s expert calculated that CMC accounted for at least 86% of sales in the proposed narrower market. The court found that the disagreement depended on unresolved factual issues about the geographic market.

The court further found a factual dispute about whether the exclusivity provision substantially foreclosed competition. Pacific Steel presented evidence that alternative mills were less efficient or not economically viable, statements attributed to CMC personnel about the competitive importance of MiDa technology, and expert testimony that rivals were effectively denied access to micro-mills in the proposed market. CMC argued that other types of mills were available and that Pacific Steel’s claimed injury was not the same as harm to competition. The court concluded that a reasonable jury could find substantial foreclosure of competition, so CMC was not entitled to summary judgment.

CMC also sought summary judgment on Pacific Steel’s Section 2 attempted-monopolization claim. That claim requires proof of specific intent to control prices or destroy competition, anticompetitive conduct, a dangerous probability of achieving monopoly power, and antitrust injury. The court found that Pacific Steel’s evidence concerning CMC’s market share, the acquisition and later shutdown of the Rancho mill, reduced output, and increased profits raised a jury question about whether CMC had a dangerous probability of achieving monopoly power. The court therefore denied CMC’s motion on that basis.

California claims

The court denied summary judgment on the Cartwright Act and Unfair Competition Law claims because Pacific Steel based those claims on the same conduct as its Sherman Act claims, and the federal antitrust claims survived summary judgment.

For the interference-with-prospective-economic-advantage claim, CMC argued that Pacific Steel’s relationship with Danieli was too speculative and that CMC’s conduct was not independently wrongful. Pacific Steel offered communications, proposals, and agreements concerning the planned mill. Viewing that evidence favorably to Pacific Steel, the court found that a reasonable jury could find a relationship with Danieli involving a probability of future economic benefit. The court therefore denied CMC’s motion on that claim.

Pacific Steel also sought summary judgment on its interference claim. The court denied that motion because it had denied Pacific Steel’s motion on its related restraint-of-trade claim and did not find the facts undisputed as to all elements of the interference claim.

Disposition

The court denied both parties’ motions for summary judgment, Docket Nos. 155 and 235. The order left the disputed claims unresolved; it did not determine whether Pacific Steel or CMC would ultimately prevail.