DOJ Merger Enforcement Arbitration: A Sign of Things To Come?

In March 2020, the Antitrust Division of the Department of Justice successfully secured the divestiture by Novelis of Aleris Corporation’s North American aluminum production facilities in U.S. v. Novelis et al. with an unorthodox enforcement tool: arbitration. The decision marked the first time in history that a U.S. antitrust authority had brought a merger enforcement action using arbitration authorized by the Administrative Dispute Resolution Act of 1996 (5 U.S.C. §571 et seq.). Assistant Attorney General Makan Delrahim subsequently explained that “[i]n the right circumstances, the antitrust agencies can harness the strengths of arbitration and help ensure that the American public benefits from a speedy and sound resolution of Sherman Act and Clayton Act claims.” Dept. of Justice, Antitrust Div., “Justice Department Wins Historic Arbitration of a Merger Dispute: Novelis Inc. Must Divest Assets to Consummate Transaction with Aleris Corporation” (March 9, 2020). In addition, the DOJ published updated guidance on the use of arbitration, suggesting that the Division may be looking to employ this novel tool more regularly. In light of these developments, practitioners should understand how arbitration was used in Novelis and how the Division is likely to use it in the future.

The Novelis Arbitration

On July 26, 2018, Novelis Inc. agreed to acquire Aleris Corporation for $2.6 billion. See Complaint at 8, U.S. v. Novelis and Aleris, No: 1:19-cv-02033-CAB (N.D. Ohio, March 9, 2020) (U.S. v. Novelis). Novelis and Aleris were two of four manufacturers of aluminum automobile body sheets (ABS) in the United States, with Novelis alone accounting for approximately 60% of domestic production while Aleris was a new entrant to the U.S. market. Id. at 10. When the DOJ filed a complaint on Sept. 4, 2019 seeking to block the acquisition, the parties already reached an agreement to refer the matter to binding arbitration if certain of the government’s competitive concerns were not satisfied within a set time. See Dept. of Justice, Antitrust Div., “Justice Department Wins Historic Arbitration of a Merger Dispute.” Fact discovery then proceeded in the district court before an adjudication on the merits was referred to the arbitrator selected by the parties (Kevin Arquit, former FTC General Counsel and Director of the Bureau of Competition). Id.