Second Circuit Affirms Dismissal Of Price Fixing Claims Against Oil Companies
09/10/2019On August 29, 2019, the United States Court of Appeals for the Second Circuit issued an Opinion and Summary Order affirming the dismissal of plaintiffs-appellant derivatives traders’ Sherman Act and Commodities Exchange Act claims against defendant-appellees oil companies. Prime International Trading, Ltd., et al. v. BP PLC, et al., No. 1:17-cv-2233 (2d Cir. 2019).
Plaintiffs alleged that defendants manipulated the price of Brent crude oil traded in the North Sea in Europe, affecting the “Dated Brent Assessment” benchmark (Dated Brent benchmark) and thereby skewed prices in derivatives markets indexed to that benchmark. Brent crude oil is extracted from the North Sea. Defendants, in addition to producing, refining, distributing, buying, and selling Brent crude oil, also trade futures contracts based on the oil on global derivatives markets. Defendants were alleged to have submitted false transactions in the physical Brent crude oil market with the intent to manipulate the Dated Brent benchmark to the benefit of their own derivatives trading activities.
Plaintiffs’ posited a multi-step theory of harm. First, defendants made “artificial” trades for physical oil. The prices of these “artificial” trades were then calculated into the Dated Brent benchmark. The Dated Brent benchmark was then incorporated into the ICE Brent Index, which is used to settle Brent-based futures that were traded on markets including ICE Futures Europe and NYMEX, where plaintiffs traded.
In its Summary Order, the Court held that plaintiffs had not adequately pled antitrust injury sufficient to support either their Section 1 or Section 2 claims under the Sherman Act because they did not participate directly in the market that was allegedly manipulated. The Court noted that generally “only ‘participants in defendants’ market’ can show antitrust injury” with a “narrow exception for ‘parties whose injuries are ‘inextricably intertwined’ with the injuries of market participants.’” (citing In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151, 158 (2d Cir. 2016)).
The Court identified two relevant markets for purposes of assessing plaintiffs’ antitrust injury: (1) the physical Brent crude oil market; and (2) the market for derivative instruments that were directly pegged to the Dated Brent benchmark. Plaintiffs only traded derivative instruments indexed to the ICE Brent Index—not the Dated Brent benchmark. The Court noted that plaintiffs conceded that the Dated Brent benchmark was only “correlated” with, but was not “expressly incorporated” into, the ICE Brent Index for the derivatives products that plaintiffs traded. Because plaintiffs did not participate in the market for physical oil, and any manipulation of the physical price of oil would have—at most—indirectly affected the ICE Brent Index, the Court found plaintiffs’ theory of harm to be too attenuated. The Court therefore dismissed plaintiffs’ antitrust claims for failure to plead antitrust injury. Because the Court’s holding on antitrust injury was issued in the form of a summary order, it is not precedential law that binds subsequent decisions.
In the accompanying Opinion, the Court affirmed the dismissal of plaintiffs’ Commodities Exchange Act (CEA) claims because the Court found that applying the CEA to alleged misconduct occurring in foreign trading markets constitutes an impermissible extraterritorial application of the CEA. The Court evaluated the statute’s language and structure to determine the geographic scope that Congress intended for the CEA. The Court determined that the lack of “clear statement of extraterritorial effect” meant that the CEA did not apply to conduct occurring abroad. Because the conduct at issue in this case centered on northern European and global indices, and “[n]early every link in [p]laintiffs’ chain of wrongdoing  entirely foreign,” the Court held that applying the CEA to that conduct was improper.