“Thuggish tactics.” “Campaign of lies.” “Xenophobic.” “Befitting a mafia boss.”
A sense of anger thrums throughout the lawsuit by U.S. Steel and Nippon Steel against rival steel maker Cleveland-Cliffs, its CEO and the president of the United Steelworkers union, in a case that plaintiffs claim could yield billions of dollars in damages for allegedly subverting their now-scuttled merger.
Filed Monday in federal court in Pittsburgh, the 93-page complaint, alleges that the defendants violated the Sherman Antitrust Act and the federal law against racketeering in opposing Nippon Steel’s $14.9 billion bid for U.S. Steel.
Ohio-based Cleveland-Cliffs’ offer to buy U.S. Steel was previously rejected by the company, despite adamant union support.
“I’m not aware of any other (cases) like this,” Freshfields antitrust partner Andrew Ewalt, who is not involved in the dispute, told me. “It’s outside the mainstream.”
Still, if the plaintiffs (and their army of lawyers from five major firms) were to prevail, the implications for the merger review process — where it’s not uncommon for complaining competitors to lobby against regulatory approval of their rivals’ deals or for conditions to be imposed — could be significant.
Though as Ewalt pointed out, “It’s a very, very steep uphill climb.”
Spokespeople from Nippon Steel and U.S. Steel did not respond to requests for comment.
Cleveland-Cliffs CEO Lourenco Goncalves in a statement called the lawsuit “legal theatrics” and “a shameless effort to scapegoat others.”
A USW spokesperson said the union is “reviewing the complaint and will vigorously defend against these baseless allegations.”
President Joe Biden last week blocked Japanese-owned Nippon’s acquisition of U.S. Steel on national security grounds. In a separate petition, against the government also filed on Monday, the companies argue the president’s decision was motivated by politics rather than legitimate security concerns, and that their due process rights were violated.
As my Reuters colleagues reported, that lawsuit may also be a stretch, given judicial deference to the executive branch on questions of national security. Moreover, the Committee on Foreign Investment in the United States, or CIFIUS, statute explicitly bars courts from reviewing presidential decisions on the merits–though a due process challenge by Chinese-owned Ralls Corp succeeded in 2014.
Nippon Steel’s bid is the ninth foreign transaction blocked by a U.S. president since the law’s inception in 1988, according to the Congressional Research Service, and the only one involving Japan, a close U.S. ally.
Regardless of whether Nippon and U.S. Steel succeed in getting Biden’s order set aside, the companies argue that Cliffs, its CEO Goncalves and USW President David McCall are “monopolists and racketeers” whose unlawful conduct should be enjoined by the court and punished with steep monetary penalties.
Nippon, represented by lawyers from Reed Smith and Ropes & Gray, and U.S. Steel, with counsel from K&L Gates; Wachtell, Lipton, Rosen & Katz; and Milbank, argue that Cliffs struck an illegal deal with the USW.
According to the complaint, the defendants’ basic labor agreement includes a provision in which the USW committed to help Cliffs “aggressively pursue opportunities” to “acquire steelmaking capacity.”
Cliffs allegedly secured the union’s “exclusive support” to buy U.S. Steel, scaring other suitors away and making the Ohio company the lone viable bidder, the plaintiffs allege — an unlawful conspiracy under the Sherman Act.
While specifics of the alleged agreement are likely to be key in determining its propriety, it’s not uncommon for unions generally to play a role in merger review, pressuring one or both firms to drop or modify merger plans, or to demand concessions in exchange for support, according to Chicago Law School Professor Eric Posner.
In his law review article, published last year, Posner, who did not respond to a request for comment, reviewed 46 attempted mergers over the last 25 years with union involvement. Posner found unions supported seven of the tie-ups, opposed 34 and took mixed positions on five.
Indeed, USW in 2006 worked to thwart Brazilian steel giant Companhia Siderurgica Nacional’s acquisition of Wheeling-Pittsburgh Steel Corp.
Nippon and U.S. Steel also allege that the defendants “so corrupted and tainted the CFIUS process that there was no process.”
But the supporting details seem scant. The complaint alleges that Cliffs CEO Goncalves “admitted to being in regular communication with the Secretary of Commerce, a CFIUS member and co-lead for the transaction review.”
Also, the complaint alleges, the USW’s McCall was appointed by the president to be an official advisor to Ambassador Katherine Tai, the United States Trade Representative, who allegedly opposed the merger.
As far as accusations go, these don’t strike me as especially damning.
Still, Ewalt’s Freshfields colleague Aimen Mir, who heads the firm’s CIFIUS practice, said there appears to have been “significant problems with how the process unfolded.”
For example, Biden spoke out against the transaction in March before the review even started. (President-elect Donald Trump in a post on his Truth Social platform also said, he was “totally against” it.) Nor does U.S. Steel produce any military-grade products or have defense contracts, according to the complaint, undercutting purported national security worries.
But is it plausible to blame Goncalves and McCall for “subverting” the CIFIUS outcome by urging government decision makers to block the deal?
The allegations may be tricky to stick, given the Noerr-Pennington doctrine, Alden Abbott, a senior research fellow at George Mason University’s Mercatus Center and former general counsel of the U.S. Federal Trade Commission, told me.
Per a series of cases known collectively as Noerr-Pennington, courts in interpreting the Sherman Act must respect the rights of citizens to request government action, even if that action limits or eliminates competition.
Do the alleged actions of Goncalves and McCall in lobbying CIFIUS to kill the deal “raise antitrust issues?” Abbott said. “I doubt it.”
Source: Reuters.com