Southern District Of New York Dismisses Putative Class Action Against Banks For Alleged Price Manipulation
04/14/2020On March 29, 2020, Judge Gregory H. Woods of the United States District Court for the Southern District of New York dismissed for lack of standing a putative class action against defendant banks accused of a conspiracy to manipulate the global benchmark price of palladium and platinum. The Court also dismissed plaintiffs’ Commodity Exchange Act (“CEA”) claims for lack of personal jurisdiction, finding that the CEA allegations concerned primarily foreign conduct. In re Platinum and Palladium Antitrust Litig., No. 1:14-CV-9391-GHW, 2020 WL 1503538 (S.D.N.Y. Mar. 29, 2020).
In granting defendants’ motion to dismiss, the Court concluded that plaintiffs could demonstrate antitrust injury, but held that they were not efficient enforcers of the antitrust laws and therefore lacked standing. In re Platinum and Palladium Antitrust Litig. (“Platinum I”), 1:14-CV-9391-GHW, 2017 WL 1169626, at *25 (S.D.N.Y. Mar. 28, 2017).
In holding that plaintiffs were not efficient enforcers, the complaint included plaintiffs who traded over-the-counter (“OTC”) and plaintiffs who traded on the New York Mercantile Exchange. The Court found that OTC plaintiffs failed to allege that they transacted directly with defendants. With respect to theExchange plaintiffs, the Court concluded that they did not sufficiently allege that defendants dominated the relevant precious metals derivative markets. More specifically, the Court found that plaintiffs’ allegations suggest that defendants’ market share was at most 45% of the relevant market. As a result, the Court held that neither group of plaintiffs was an efficient enforcer of the antitrust laws.
The Court also observed that the benchmark manipulation cases created a potential risk of disproportionate damages, which is a factor courts consider when applying the efficient enforcer doctrine, and held that the risk of disproportionate damages weighed in favor of denying standing to both sets of plaintiffs.
Finally, the Court reversed an earlier ruling, and dismissed plaintiffs’ claims under the CEA, finding the claims to be “impermissibly extraterritorial” in light of the Second Circuit’s holding in Prime Int’l Trading, Ltd. v. BP P.L.C., 937 F.3d 94 (2d Cir. 2019). The Court noted that Prime required an assessment of “whether Plaintiffs have pleaded an appropriately domestic application of the CEA,” and to do that “the Court must assess whether Plaintiffs’ CEA claims are predominantly foreign.” According to the Second Circuit, the Court must look at where the allegedly unlawful manipulation occurred. In assessing plaintiffs’ claims, the Court found that they were predominantly foreign because plaintiffs alleged that defendants’ manipulation occurred in London and the price was set in London or Zurich, and thus must be dismissed for lack of personal jurisdiction.
The Court dismissed plaintiffs’ claims without prejudice, leaving them another opportunity to amend their complaint.