Southern District Of New York Dismisses Oil Price Manipulation Claims Based On Failure To Adequately Allege Antitrust Injury Linked To Defendants’ Alleged Conduct
On June 8, 2017, Judge Andrew L. Carter of the United States District Court for the Southern District of New York granted defendant energy companies’ motion to dismiss claims brought by two putative classes of derivatives traders and landowners, finding that plaintiffs failed to sufficiently allege that they suffered an antitrust injury linked to defendants’ alleged conduct in the relevant markets. In re: North Sea Brent Crude Oil Futures Litigation, Case No. 1:13-md-02475 (S.D.N.Y. Jun. 8, 2017). Plaintiffs, a putative class of landholding interests in U.S. oil-producing property and a putative class of futures and derivatives traders, alleged that defendants conspired to intentionally manipulate Brent crude oil prices and the prices of Brent crude oil futures and derivatives contracts traded on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE Futures Europe”) in violation of the Sherman Act (as well as other federal and state laws). Brent crude is crude oil pulled from the North Sea region of Europe. In dismissing the Sherman Act claims, the district court found that plaintiffs had not suffered any antitrust injury, and therefore did not have standing as plaintiffs under Section 4 of the Clayton Act.
Antitrust injury is injury that “flows from” or is caused by the anticompetitive aspect of the harm to competition, and is a type of injury which the antitrust laws were intended to prevent. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Based on the principles of Brunswick, the Second Circuit has held that, generally, only participants in the market in which the defendant colluded can be said to have suffered antitrust injury sufficient to establish antitrust standing under the Clayton Act. See, e.g., In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151, 157 (2d Cir. 2016). One exception to this requirement is that parties whose injuries are “inextricably intertwined” with injuries of market participants have also suffered antitrust injury (e.g., if defendants corrupted the plaintiff’s market in order to achieve their illegal ends). Id. at 159.
Based on the factual allegations in the complaint, the district court defined the relevant markets for antitrust standing analysis as (1) the physical Brent crude oil market and (2) the market for any derivative instrument that directly incorporates Dated Brent as benchmark or pricing element (Dated Brent is a primary benchmark for Brent crude oil assigned for specified delivery dates). This is consistent with Second Circuit precedent that manipulation of a price benchmark constitutes a restraint of the benchmarked market. See, e.g., Gelboim v. Bank of Am. Corp., 823 F.3d 759 (2d Cir. 2016). Using these relevant markets, the district court found it easy to dismiss the landowner plaintiffs’ claims, because landowner plaintiffs did not participate in either allegedly restrained market. Plaintiffs did not participate in the physical Brent crude oil market (rather, plaintiffs participated in the West Texas Intermediate (or “WTI”) market, which is a U.S.-based crude oil market), nor did defendants manipulate a benchmark relevant to plaintiffs’ interests.
With a slightly more complicated analysis, the district court also dismissed the trader plaintiffs’ claims because the trader plaintiffs failed to demonstrate that the defendants manipulated a relevant benchmark. This dismissal had two key elements: (1) the majority of Brent futures traded on NYMEX and Ice Future Europe are pegged to indices that do not incorporate Dated Brent; and (2) for the limited set of financial instruments that do incorporate Dated Brent as a benchmark, trader plaintiffs failed to make any allegations that either they or the defendants participated in these markets. The plaintiffs failed to demonstrate that their injuries were inextricably intertwined with the harm to those who do participate in defendant’s markets.
This case demonstrates again that courts in the Second Circuit will continue to conduct a close analysis of the factual allegations underlying antitrust complaints alleging collusion in manipulating benchmarks to ensure that the plaintiffs’ alleged injuries are sufficiently connected to the defendants’ alleged wrongdoing to establish standing. The mere allegation that a plaintiff was injured by a manipulated benchmark will not suffice.