CMC plans to appeal restraint of trade ruling

A jury in California has ruled in favor of a plaintiff who says a non-compete agreement between recycled-content steelmaker Commercial Metals Company (CMC) and a steel production technology vendor played out as an unfair restraint of trade practice.

The suit, filed in 2021, has as its background the President Donald J. Trump’s Section 232 tariffs on imported steel, and the subsequent reaction by rebar fabricator Pacific Steel Group of San Diego, California.

According to the original 68-page lawsuit filed in 2021, the rebar company (unrelated to metals recycling firm Pacific Steel & Recycling of Montana) was dissatisfied with its inability to gain an exemption to import steel or CMC’s ability to supply it adequately with semi-finished rebar—especially as CMC itself acquired additional rebar fabrication plants.

The suit claims Nucor and other electric arc furnace (EAF) steelmakers did not support Pacific Steel’s Turkish steel import exemption effort. The California company also says that when it requested an immediate high-volume order of rebar from CMC, the company would not or could not fill the order.

“Pacific Steel decided in 2019 that the time was right to explore building its own micro mill,” reads the lawsuit.

To that end, in late 2019, Pacific Steel says it arranged a meeting with Paolo Losso, an executive with Italian EAF equipment vendor Danieli. “Pacific Steel shared with Mr. Losso its vision of building a state-of-the-art micromill within California, powered in large part by solar and wind energy, that would enable Pacific Steel to produce up to 380,000 metric tons of rebar per year,” reads the court document.

As portrayed by the filed suit, Danieli executives continued to meet with Pacific Steel, but soon informed the firm the proposed site of its micromill was inside a radius of territory covered by a non-compete agreement it had with CMC.

The suit also portrays a Western United States rebar market Pacific Steel views as too consolidated and difficult for new competitors to enter.

“The exclusivity agreement that CMC extracted from Danieli is a naked restraint of trade with no efficiency justification and the sole purpose and effect of preventing entry into the relevant rebar manufacturing market by blocking by far the most efficient and effective, and the profit-maximizing, means of entry,” states the suit.

In a statement released Nov. 5, CMC says, “A trial on Pacific Steel’s claims began on Oct. 21 and concluded today with a verdict in favor of Pacific Steel in the amount of $110 million, which will be trebled as a matter of law, plus attorneys’ fees. We are very disappointed by the outcome and plan to appeal the verdict. CMC stands by the strong integrity of its business practices and will vigorously defend its position.”

A statement on the website of Washington-based Cohen Milstein Sellers & Toll, one of the two law firms that helped file the suit, refers to CMC as “a multinational steel conglomerate and the nation’s largest manufacturer and fabricator of steel rebar,” that was on trial for “conspiring to block the entry of Pacific Steel Group from entering the Southern California rebar market.”

On its website, Pacific Steel Group displays an April 2022 announcement saying it “has awarded a contract to Danieli to provide a state-of-the-art Micromill Danieli (MIDA) Hybrid micromill for [our] steel mill project in Mojave, California. Danieli has decades of industry experience and is the industry leader in continuous feed micro mill technology.”