Apex Oil Co. v. DiMauro, 737

Citation822 F.2d 246
Decision Date17 June 1987
Docket NumberNo. 737,D,737
Parties, 1987-1 Trade Cases 67,607 APEX OIL COMPANY, Plaintiff-Appellant, v. Joseph DiMAURO, Triad Petroleum, Inc., Tic Commodities, Inc., Coastal Corporation, Coastal States Marketing, Inc., Belcher Oil Company, The Belcher Company of New York, Inc., Belcher New England, Inc., Belcher New Jersey, Inc., Stinnes Corporation, Stinnes Interoil, Inc., Eastern of New Jersey, Inc., Northeast Petroleum Industries, Inc., Northeast Petroleum Corporation, George E. Warren Corporation, New York Mercantile Exchange and Julian Raber, Defendants-Appellees. ocket 86-7898.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Richard J. Wiener, New York City (Pamela Rogers Chepiga, Jeffrey Q. Smith, Robert D. Rippe, Jr., Cadwalader, Wickersham & Taft, New York City, of counsel), for plaintiff-appellant.

Martin I. Kaminsky, New York City (Edward T. McDermott, Pollack & Kaminsky, New York City, of counsel), for defendants-appellees Joseph DiMauro, Triad Petroleum, Inc., and TIC Commodities, Inc.

Michael Lesch, New York City (Adam B. Gilbert, Yee Wah Chin, Shea & Gould, New York City, of counsel), for defendants-appellees The Coastal Corp., Coastal States Marketing, Inc., Belcher Oil Co., The Belcher Co. of New York, Inc., Belcher New England, Inc., and Belcher New Jersey, Inc.

Larry Wainer, Houston, Tex., of counsel, for defendants-appellees The Coastal Corp. and Coastal States Marketing, Inc.

Donald E. Egan, Lee Ann Watson, James E. Hanlon, Jr., Katten, Muchin, Zavis, Pearl, Greenberger & Galler, Chicago, Ill., Christopher H. Lunding, Mitchell A. Lowenthal, Cleary, Gottlieb, Steen & Hamilton, New York City, of counsel, for defendants-appellees Stinnes Corp. and Stinnes Interoil, Inc.

Kenneth J. McGuire, Stein, Bliablias, McGuire & Pantages, Livingston, N.J., of counsel, for defendant-appellee Eastern Oil of New Jersey.

Neil T. Motenko, T. Christopher Donnelly, Lisa C. Wood, Nutter, McClennon & Fish, Boston, Massachusetts, Jon Paul Robbins, Nitken, Alkalay, Handler & Robbins, New York City, of counsel, for defendants-appellees Northeast Petroleum Corp. and Northeast Petroleum Industries, Inc. David R. Schaefer, James C. Graham, Brenner, Saltzman, Wallman & Goldman, New Haven, Connecticut, Darrell K. Fennell, Owen & Fennell, New York City, of counsel, for defendant-appellee George E. Warren Corp.

William E. Hegarty, New York City (Peter Leight, Kathy Silberthau, Phillip C. Essig, Cahill Gordon & Reindel, New York City, of counsel), for defendant-appellee New York Mercantile Exchange.

Julius Berman, Phillip A. Geraci, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel, for defendant-appellee Julian Raber.

Before PIERCE and ALTIMARI, Circuit Judges, and SPRIZZO, District Judge. *

PIERCE, Circuit Judge:

In this appeal we are called upon to review a grant of summary judgment in a complex antitrust conspiracy case. This litigation arises out of the circumstances surrounding the settling of February 1982 futures contracts for No. 2 home heating oil. Simply stated, plaintiff-appellant Apex Oil Company ("Apex") alleges that defendants-appellees, which include competing oil companies, a broker, the New York Mercantile Exchange (the "Exchange"), and an officer of the Exchange named Julian Raber, conspired to force Apex to deliver much of the oil it had agreed to deliver in February 1982 in the first three delivery days of that month at one delivery site. Apex alleged that this behavior made it impractical or impossible for Apex to deliver on time and forced Apex to pay premium prices to other oil companies, including defendants, to obtain oil for delivery to defendants in order to avoid a default.

I. INTRODUCTION

Since this action centers upon a series of events surrounding the futures market for No. 2 heating oil for February 1982, it is helpful to outline the workings of the commodities futures market.

In brief, a commodity futures contract entitles the buyer of the contract (the "long") to purchase from the seller of the contract (the "short") a set quantity of some commodity at a set date in the future. Typically, all of the terms of the contract, except price, are standardized under the rules of an exchange. The price is negotiated on the floor of the exchange.

This case concerns futures contracts for No. 2 heating oil sold on the Exchange. On the Exchange, one futures contract for No. 2 oil consists of a contract to deliver 1000 barrels (42,000 gallons) of oil in New York Harbor at a set price during some future month.

Most contracts, however, never result in actual delivery since the market is used by many investors for speculation. Speculation is made possible by allowing holders of long or short "positions" to "liquidate" those positions by purchasing or selling the necessary contracts. For example, a holder of short contracts who does not wish to deliver oil may buy a number of long contracts equal to the number of short contracts he or she holds. Similarly, a long who does not wish to take delivery of the oil may enter into short contracts equal in number to the number of long contracts held. The speculator makes a profit or suffers a loss based on the differences in the prices paid for the long and short contracts.

Many actors take part in the market for No. 2 heating oil futures. A futures commission merchant or broker executes the desires of the actual buyers or sellers of contracts by requesting a member of the Exchange ("clearing member") to enter into the transaction through a floor broker on the floor of the Exchange. The Exchange functions as a "clearing house," acting as a buyer to all sellers and a seller to all buyers thereby enabling an investor who wishes to buy or sell a contract to find a partner.

When trading is closed for contracts for a particular month, the Exchange determines which persons hold long positions and which persons hold short positions by offsetting each trader's long contracts and short contracts. The Exchange then matches the longs with the shorts for the purpose of delivery. Under rules discussed below, the matched parties work out the time, place and method of delivery. Delivery may still be avoided by means of an "exchange futures for product" transaction ("EFP"). In an EFP, the parties agree to supersede the futures contract with a new contract to deliver oil on the cash ("wet") market. If the holder of a short position defaults, i.e., fails to deliver timely, the Exchange rules provide for fines and other sanctions.

II. BACKGROUND

In light of the complexity and mass of material presented by the parties herein, we briefly summarize what appear to us to be undisputed facts concerning the subject February 1982 No. 2 heating oil contracts.

The rules of the Exchange provided that any February contracts not liquidated by Friday, January 29, 1982--the close of trading for such contracts--would be matched, long with short, for the purpose of delivery (or EFP). At the close of trading, Apex was short 4,378 contracts. In other words, Apex had agreed to deliver 4,378 contracts (183,876,000 gallons) of oil in February 1982. The total number of outstanding contracts designated for delivery by all persons holding short positions, including Apex, was 4,906.

Of the 4,906 contracts open at the close of trading, 1,945 were held by a number of oil companies and their affiliates who were named as defendants herein 1 (the "long defendants"):

As required by Exchange rules, on February 1, 1982, Apex selected a delivery site through its broker and clearing member Goldman Sachs & Co. ("Goldman"). For 4,281 of its 4,378 contracts, it selected GATX terminal in Carteret, New Jersey, as the delivery site. Apex designated B.P. terminal at Tremley Point, New Jersey, as the delivery site for the remaining contracts. On the same day, also pursuant to Exchange rules, each long defendant submitted "Notice of Intention to Accept Petroleum Products Futures." The clearing house then matched up longs and shorts for delivery. All of the open long positions held by the long defendants, except for fifteen contracts to be delivered to Warren, were designated by the Exchange for delivery by Apex.

The Exchange rules then required each long to nominate a delivery date and method by 4:30 p.m. on February 5. Deliveries could be requested by pipeline, intra-facility transfer, inter-facility transfer, inventory The rules then in effect stated that "[t]he buyer shall give written delivery or loading instructions," that "[a]ll deliveries must be completed after the fifth business day and before the last business day of the delivery month," and that in the case of barge or tanker delivery, "[t]he seller must supply the product as soon as the barge or tanker reports readiness to load," or in the case of on-shore delivery, "as soon as the buyer reports the transfer facility or truck is ready to accept the product." Herein, the first day for which the long defendants could demand delivery was February 6.

(also known as book) transfer, tanker, barge or truck. Inventory transfer entails transfer of title of oil without actually moving or delivering it.

Prior to February 1982, the nominations by holders of long positions typically were spread throughout the month. Moreover, it was not unusual for long and short parties to be somewhat flexible in the actual timing and location of delivery. For example, in December 1981 and January 1982, the nominations of the long defendants were spread fairly evenly throughout each month. The actual delivery dates differed from the nominated dates for roughly two-thirds of the nominations. The actual delivery method was changed in two-thirds of the nominations. The actual location for delivery differed in nearly one-third of the nominations. Thus, although the rules apparently allowed longs to rigidly demand delivery at a particular time and place, in practice the longs were not always...

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