Prime Int'l Trading, Ltd. v. BP P. L.C.
| Citation | 937 F.3d 94 |
| Decision Date | 29 August 2019 |
| Docket Number | August Term 2018,No. 17-2233,17-2233 |
| Parties | PRIME INTERNATIONAL TRADING, LTD., White Oaks Fund LP, Kevin McDonnell, Anthony Insinga, Robert Michiels, John Devivo, Neil Taylor, Aaron Schindler, Port 22, LLC, Atlantic Trading USA, LLC, and Xavier Laurens, Plaintiffs-Appellants, v. BP P.L.C., Trafigura Beheer B.V., Trafigura AG, Phibro Trading L.L.C., Vitol S.A., Mercuria Energy Trading S.A., Hess Energy Trading Company, LLC, Statoil US Holdings Inc., Shell Trading US Company, BP America, Inc., Vitol, Inc., BP Corporation North America, Inc., Mercuria Energy Trading, Inc., Morgan Stanley Capital Group Inc., Phibro Commodities Ltd., Shell International Trading and Shipping Company Limited, Statoil ASA, and Royal Dutch Shell PLC, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
David E. Kovel (Andrew M. McNeela on the brief), Kirby McInerney LLP, New York, NY, for Plaintiffs-Appellants.
Richard C. Pepperman (Daryl Libow, Amanda Davidoff, Austin L. Raynor on the brief), Sullivan & Cromwell LLP, New York, NY for Defendants-Appellees BP PLC, BP America, Inc. and BP Corporation North America, Inc.
David B. Salmons (Steven A. Reed, R. Brenda Fee, Michael E. Kenneally, on the brief) Morgan, Lewis & Bockius LLP, Philadelphia, PA for Defendant-Appellee Shell International Trading and Shipping Company Limited.
Perry A. Lange (David S. Lesser on the brief) Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC for Defendant-Appellee Statoil ASA.
Before: Jacobs, Sullivan, Circuit Judges, and Korman, District Judge**
This appeal requires us to decide whether alleged misconduct tied to the trading of crude oil extracted from Europe’s North Sea constitutes an impermissibly extraterritorial application of the Commodity Exchange Act. For the reasons set forth below, we find that it does, and therefore affirm the dismissal of Plaintiffs-Appellants’ claims.
Plaintiffs-Appellants ("Plaintiffs")1 are individuals and entities who traded futures and derivatives contracts pegged to North Sea oil — also known as Brent crude — on the Intercontinental Exchange Futures Europe ("ICE Futures Europe") and the New York Mercantile Exchange ("NYMEX") between 2002 and 2015 (the "Class Period").
Defendants-Appellees ("Defendants")2 are a diverse group of entities involved in various aspects of the production of Brent crude. In addition to producing, refining, and distributing Brent crude, Defendants also purchase and sell Brent crude on the physical market and trade Brent-crude-based futures contracts on global derivatives markets.
Brent crude is extracted from the North Sea of Europe, and refers to oil pulled from four fields in the region: Brent, Forties, Oseberg, and Ekofisk (collectively, "BFOE"). The price of Brent crude serves as the benchmark for two-thirds of the world’s internationally-traded crude.
Following extraction, Brent crude is delivered via pipeline to ports in Europe where it is loaded onto ships for delivery. These physical cargoes are bought and sold through private, over-the-counter ("OTC") transactions between producers, refiners, and traders. Because these physical transactions are private and do not occur on an open exchange, the price of Brent crude is not immediately available to the public. Instead, price-reporting agencies collect information about transactions from market participants and report it to the consuming public.
Platts is a prominent London-based price-reporting agency that collects information from market participants regarding their physical Brent crude transactions, analyzes that data to compute benchmark prices, and publishes those prices in real-time price reports as well as various end-of-day price assessments. The price reports track several different submarkets in the Brent crude market, but the "primary pricing benchmark"—widely regarded as the "spot" price for Brent crude — is the "Dated Brent Assessment."
The Dated Brent Assessment tracks physical cargoes of North Sea crude oil that have been assigned specific delivery dates. Rather than averaging the prices of the four grades of Brent crude, the Dated Brent Assessment is based on the lowest price among the four grades, and is calculated each day during the assessment period. Platts uses a Market-on-Close ("MOC") methodology, under which Platts tracks all Brent crude trading activity during the day, but weighs most heavily the bids, offers, and transactions that occur at the end of each trading day, from 4:00 to 4:30 P.M. GMT.
Although Platts relies on market participants to voluntarily self-report their private transactions in order to create and publish the Dated Brent Assessment, they do not just mechanically recite the reported trade activity. Instead, Platts exercises its own discretion to accept or reject transactional data, and makes this assessment based on the reliability, accuracy, and consistency of such data. At the end of the day, Platts’ goal in publishing the Dated Brent Assessment is to accurately reflect market prices and to avoid distortion or artificiality.3
Plaintiffs focus their claims on Brent-related futures and derivatives contracts ("Brent Futures"), which are primarily traded on two exchanges: NYMEX and ICE Futures Europe. NYMEX is a U.S.-based commodity futures exchange, while ICE Futures Europe is a London-based exchange. Plaintiffs and other market participants trade on both exchanges. The most heavily traded Brent Futures contract is the "ICE Brent Futures Contract," which has a corollary contract on the NYMEX.
These contracts stop trading, or "expire," approximately two weeks before the delivery month. If a futures contract is not offset before it expires, the contract is cash-settled. In other words, the in-the-money counterparty receives the cash value of the contract rather than the underlying asset itself.
Brent Futures traded on ICE Futures Europe ("ICE Brent Futures") are cash-settled based on an established benchmark known as the ICE Brent Index. Brent Futures traded on the NYMEX, in turn, settle at expiration to the price of ICE Brent Futures. Unlike the Dated Brent Assessment — which Platts calculates based on prices for the least expensive BFOE grade of Brent cargoes — the ICE Brent Index is calculated based on the entire BFOE market of physical Brent cargoes. In addition, the ICE Brent Index incorporates an average of certain designated price-reporting assessments, one of which, Plaintiffs allege, is the Dated Brent Assessment.
Beyond this incorporation, Plaintiffs provide several other points of support for their claim of a "direct[ ] link" between Brent Futures settlement prices and the Dated Brent Assessment. Specifically, they contend that the "ICE Brent Futures Contracts prices rarely deviate from the Dated Brent Assessment by more than 1% at expiration," and that "changes in the Dated Brent Assessment directly impact[ ] Brent Futures prices."
Plaintiffs allege that Defendants conspired to manipulate, and did in fact manipulate, the market for physical Brent crude and Brent Futures by executing fraudulent bids, offers, and transactions in the underlying physical Brent crude market over the course of the Class Period. Defendants allegedly conducted these trades during the MOC window and then systematically reported the artificial transactions to Platts with the intention of manipulating the Dated Brent Assessment. According the Plaintiffs, Defendants’ aim in doing so was "to benefit their physical Brent and Brent Futures positions," while the consequent manipulation of Brent Futures prices caused Plaintiffs to suffer economic loss because they transacted in Brent Futures during this time.
Plaintiffs’ claim involves a causal chain that can be summarized as follows: Defendants engaged in artificial trades of physical Brent crude in foreign markets; Defendants systematically reported the artificial trade data to Platts; Platts reviewed and incorporated the fraudulent data into its calculation of the Dated Brent Assessment; ICE Futures Europe in turn incorporated the manipulated Dated Brent Assessment into the ICE Brent Index; the manipulated ICE Brent Index was used to settle Brent Futures that were traded on both the London-based ICE Futures Europe and the U.S.-based NYMEX; as a result, Brent Futures traded and settled at artificial prices, causing economic loss to traders such as Plaintiffs.
Plaintiffs — as they acknowledge — "do not allege a single overarching conspiracy among all Defendants for the full Class Period," nor do they allege that the physical Brent crude market was monopolized by all Defendants simultaneously. Moreover, Plaintiffs do not assert that Defendants engaged in any manipulative trading on NYMEX or ICE Futures Europe. Rather, Plaintiffs limit the focus of their claim to Defendants’ foreign physical market transactions, arguing that these transactions initiated a chain of events that caused ripple effects across global commodities markets.
B. Procedural History
In 2013, Plaintiffs filed various independent cases against Defendants. Those cases were consolidated and transferred to the Southern District of New York (Carter, J .) in October 2013. Defendants filed an Amended Complaint on July 3, 2014, and filed a Second Amended Complaint ("SAC") on February 27, 2015. In the SAC, Plaintiffs asserted claims under (1) Sections 6(c)(1) and 9(a)(2) of the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 9(1)(a), 13(a)(2), including derivative claims for respondeat superior and for aiding and abetting, see 7 U.S.C. §§ 2(a)(1)(B), 25(a)(1)4 ; (2) Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 ; and (3) the common law for unjust enrichment. On July 28, 2014, Defendants Statoil and STASCO individually filed motions to dismiss based, respectively, on lack of subject...
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...which was the underlying Japanese Yen deposit. In so holding, the Second Circuit relied on Prime Int'l Trading, 25 Ltd. v. BP P.L.C., 937 F.3d 94 (2d Cir. 2019), in which plaintiffs traded futures on a U.S.-based exchange that were tied to a benchmark rate dependent on the value of crude tr......