In re Platinum & Palladium Antitrust Litig.

• Decision Date: 29 March 2020
• Docket Number: Lead Case 1:14-cv-9391-GHW
• Citation: 449 F.Supp.3d 290
• Parties: IN RE PLATINUM AND PALLADIUM ANTITRUST LITIGATION
• Court: U.S. District Court — Southern District of New York

449 F.Supp.3d 290

IN RE PLATINUM AND PALLADIUM ANTITRUST LITIGATION

Lead Case 1:14-cv-9391-GHW

United States District Court, S.D. New York.

Signed March 29, 2020

MEMORANDUM OPINION AND ORDER

GREGORY H. WOODS, United States District Judge

Platinum and palladium are precious metals. Plaintiffs in this case allege that Defendants conspired to manipulate the price of these metals by "fixing the Fix." In re Platinum and Palladium Antitrust Litig. ("Platinum I "), 1:14-CV-9391-GHW, 2017 WL 1169626, at *5 (S.D.N.Y. Mar. 28, 2017). The Fix was supposed to be a process by which Defendants determined the worldwide benchmark price of platinum and palladium according to the laws of supply and demand. But Plaintiffs allege that Defendants colluded to push the benchmark price below the price that would have prevailed in a competitive market, which allegedly caused Plaintiffs to receive lower prices for their platinum and palladium investments than they otherwise would have.

The Court reaffirms the conclusion it reached in Platinum I that Plaintiffs are not efficient enforcers of the antitrust laws because Plaintiffs have not adequately alleged that they traded directly with any Defendant or that Defendants dominated the market for platinum and palladium derivatives. However, the Court has personal jurisdiction over the foreign defendants because Plaintiffs have amended their complaint to plausibly allege conduct by their co-conspirators in the United States in furtherance of the conspiracy to manipulate the Fix price. Finally, because Plaintiffs' Commodities Exchange Act ("CEA") claims are predominately foreign, those claims are impermissibly extraterritorial. Accordingly, Defendants' motion to dismiss Plaintiffs' Sherman Act claim is GRANTED, the foreign defendants' motion to dismiss for lack of personal jurisdiction is DENIED, and Defendants' motion for reconsideration is GRANTED.

I. BACKGROUND¹

A. Facts²

Platinum and palladium are "closely related precious metals." TAC ¶ 104. "While platinum and palladium—like gold and silver—have industrial uses, all four have traditionally been traded internationally ... [and] held primarily for their exchange value rather than industrial use." Id. ¶ 54 (citation omitted). The allegations in this case center on the "London Platinum and Palladium Price Fixing (the ‘Fixing’ or ‘Fix’)." Id. ¶ 3. The Fix was a "private conference call twice each London business day" that "set global benchmark prices for platinum and palladium." Id. The Fix set this benchmark by establishing the price for physical platinum and palladium; the physical platinum and palladium was housed in London or Zurich. Id. ¶ 59.

The London Platinum and Palladium Fixing Company Ltd. ("LPPFC") operated as the "vehicle" for the Fix from 2004 to 2014. Id. ¶ 3. Throughout the period between January 1, 2008 and November 30, 2014 (the "Proposed Class Period"), there were four "members" of LPPFC that participated in the Fix. Id. Those members are the defendants in this case: BASF Metals Limited ("BASF Metals"), Goldman Sachs International ("Goldman Sachs"), HSBC Bank USA, N.A. ("HSBC"), and ICBC Standard Bank Plc ("ICBC Standard"). Id.

In theory, the Fix price was determined through a bona fide Walrasian auction among Defendants. Id. ¶ 58. One Fixing member, known as the Chair, would announce an opening price. Id. ¶ 59. Then, each Defendant would announce whether they were interested in buying or selling platinum and palladium at that price. Id. The Chair would then adjust the Fix price until the market reached an equilibrium at which supply equaled demand for platinum and palladium at the Fix price. Id. ¶ 62; see Platinum I , 2017 WL 1169626, at *3.

Platinum and palladium trade in at least two markets. First, "[t]he market for physical platinum and palladium operates on an over-the-counter (‘OTC,’ i.e. , between private parties) basis." TAC ¶ 74; see Platinum I , 2017 WL 1169626, at *4-5. Second, platinum and palladium futures and options contracts trade either OTC or on an "exchange." TAC ¶ 79; see Platinum I , 2017 WL 1169626, at *4-5 (defining the terms "futures contract" and "options contract"). The New York Mercantile Exchange ("NYMEX") is the "leading centralized exchange for platinum and palladium futures and options worldwide." TAC ¶ 79. Plaintiffs also allege that "NYMEX Platinum and Palladium prices move virtually in tandem with Fix prices." Id. ¶ 82; see id. ¶ 94 (alleging a correlation coefficient of 1.00 for physical platinum prices to futures prices and 0.99 for physical palladium prices to futures prices).

Plaintiffs Norman Bailey, Thomas Galligher, and Larry Hollin are individuals who "sold NYMEX platinum and palladium futures contracts at artificial[ly low] prices." Id. ¶ 28-30. Plaintiff White Oak Fund is a "private placement fund" also alleged to have transacted in NYMEX platinum futures contracts. Id. ¶ 32. Collectively, this opinion refers to these plaintiffs as the "Exchange Plaintiffs." The TAC alleges that Plaintiff KPFF Investment, Inc. "sold physical platinum and palladium" at artificially low prices. Id. ¶ 31. This opinion refers to KPFF as the "OTC Plaintiff."

The crux of Plaintiffs' allegations giving rise to this action is that Defendants took advantage of the Fixing Calls to set the Fix Price at lower levels than competitive market forces would otherwise have dictated. Id. ¶ 102; see Platinum I , 2017 WL 1169626, at *5. Plaintiffs allege that Defendants manipulated the Fix Price in two ways. First, Plaintiffs allege that Defendants "conspired to manipulate the Opening Price announced by the Chair at the beginning of the Fixing Calls." TAC ¶ 247; see Platinum I , 2017 WL 1169626, at *5. Second, Plaintiffs allege that "Defendants misrepresented actual market supply and demand in order to move the AM and PM Fix Price to the level at which it was ultimately fixed." TAC ¶ 247; see Platinum I , 2017 WL 1169626, at *5.

Plaintiffs allege that Defendants employed different strategies to profit from this manipulation. First, Plaintiffs generally allege that Defendants exploited their foreknowledge of downward swings in the platinum and palladium Fix Price to make advantageous transactions in a variety of Platinum and Palladium Investments. TAC ¶¶ 15-16; see Platinum I , 2017 WL 1169626, at *8. Relatedly, Defendants also benefited from reducing their risk in digital options and other contracts with market-based triggers, such as "stop loss" orders and "margin calls." TAC ¶ 208; see Platinum I , 2017 WL 1169626, at *8. Second, the TAC alleges that Defendants were particularly motivated to suppress the Fix Price in order to profit from large net "short" positions that they allegedly held in the platinum and palladium futures market, including NYMEX, throughout the Proposed Class Period. TAC ¶ 174; see Platinum I , 2017 WL 1169626, at *8. In addition to these methods of profiting directly from manipulating the Fix, Plaintiffs allege that the Fixing calls enabled Defendants to employ other price manipulation tactics, including "front running," "spoofing," "wash sales," "painting the screen," and "jamming." TAC ¶¶ 10, 179 & n.4; see Platinum I , 2017 WL 1169626, at *6 (defining these terms).

Plaintiffs present economic data in support of their claims that there were "artificial downward spikes around the time of the Fixing" for which "there is no innocent explanation." TAC at 49, 91 (capitalization altered). Plaintiffs also highlight government investigations into Defendants, which they claim "corroborate" their allegations. Id. at 128 (capitalization altered).

B. Procedural History

Plaintiffs commenced this action on November 25, 2014. Dkt No. 1. The parties filed a joint motion to consolidate five substantively similar complaints and to appoint Labaton Sucharow LLP and Berger & Montague, P.C. as interim co-lead counsel for the proposed class, which the Court granted. Dkt No. 32. Plaintiffs subsequently filed a consolidated amended complaint, and Defendants moved to dismiss. Dkt Nos. 45, 76, 79. Plaintiffs then filed a second consolidated amended class action complaint ("SAC"), and Defendants again moved to dismiss for failure to state a claim and for lack of personal jurisdiction over certain foreign defendants. Dkt Nos. 102, 115, 117, 119-20.

The Court granted those motions in part and denied them in part. Platinum I , 2017 WL 1169626, at *53. The Court held that Plaintiffs had plausibly alleged a conspiracy among Defendants to violate the Sherman Act based on Plaintiffs' allegations of Defendants' "parallel conduct" and other circumstantial evidence including that "the Fixing coincided with Defendants' alleged price manipulation[,]" that Defendants allegedly acted against their own economic self-interest, and that Defendants had a "common motive" to "profit from their foreknowledge of the Fix Price[.]" Id. at *10-16. The Court also concluded that Plaintiffs had Article III standing. Id. at *16-17. The Court then considered whether Plaintiffs had antitrust standing. See id. at *18-25. The Court held that Plaintiffs had adequately alleged an antitrust injury. Id. at *19-20.

However, the Court concluded that Plaintiffs were not "efficient enforcers" of the antitrust laws. Id. at *20-25. Examining all four efficient enforcer factors, the Court determined that "it is appropriate to draw a line between persons who transacted directly with Defendants and those who did not." Id. at *22. Because Plaintiffs did not allege that they transacted directly with Defendants, the Court held that Plaintiffs were not efficient enforcers of the antitrust laws.

The Court also concluded that Plaintiffs had plausibly alleged Commodities Exchange Act ("CEA") violations. Id. at *25-37.³ The Court held that Plaintiffs' CEA claims were not impermissibly extraterritorial. Id. at *26-28. Those claims are the subject of Defendants' motion for reconsideration. In addition, the Court held that it did not have personal jurisdiction over Foreign Defe...