Harry v. Total Gas & Power N. Am., Inc.

• Decision Date: 27 March 2017
• Docket Number: 15–cv–9689 (JGK)
• Citation: 244 F.Supp.3d 402
• Parties: Alan HARRY, Levante Capital, LLC, Public Utility District No. 1 of Clark County, Washington (d/b/a Clark Public Utilities), and C&C Trading, LLC, on behalf of themselves and all others similarly situated, Plaintiffs, v. TOTAL GAS & POWER NORTH AMERICA, INC., Total, S.A., Total Gas & Power Limited, and John Does 1–50, Defendants.
• Court: U.S. District Court — Southern District of New York

244 F.Supp.3d 402

Alan HARRY, Levante Capital, LLC, Public Utility District No. 1 of Clark County, Washington (d/b/a Clark Public Utilities), and C&C Trading, LLC, on behalf of themselves and all others similarly situated, Plaintiffs,

v.TOTAL GAS & POWER NORTH AMERICA, INC., Total, S.A., Total Gas & Power Limited, and John Does 1–50, Defendants.

15–cv–9689 (JGK)

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

Signed March 27, 2017

Bernard Persky, Robins, Kaplan, Miller & Ciresi, LLP, Hollis L. Salzman, Kellie Lerner, Robins, Kaplan LLP, Lauren Wagner Pederson, Thomas W. Elrod, David E. Kovel, Karen M. Lerner, Kirby McInerney LLP, John Douglas Richards, Michael Benjamin Eisenkraft, Cohen Milstein Sellers & Toll P.L.L.C., New York, NY, Anthony F. Fata, Cafferty Faucher LLP, Jennifer W. Sprengel, Cafferty Clobes Meriwether & Sprengel LLP, Chicago, IL, Patrick E. Cafferty, Cafferty Clobes Meriwether & Sprengel LLP, Ann Arbor, MI, Times Wang, Cohen Milstein Sellers & Toll PLLC, Washington, DC, for Plaintiffs.

Aric Hugo Wu, Michael S. Marron, Gibson, Dunn & Crutcher, LLP, New York, NY, David Debold, Jason J. Fleischer, Rachel E. Mondl, William S. Scherman, Gibson, Dunn & Crutcher, LLP, Washington, DC, for Defendant.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

This is a putative class action under the Commodity Exchange Act and the Sherman and Clayton Acts alleging manipulation of prices for physical and financial natural gas contracts. Alan Harry, Levante Capital, LLC, Public Utilities District No. 1 of Clark County, Washington (d/b/a Clark Public Utilities), and C & C Trading, LLC (the "plaintiffs") engaged in transactions in the physical and financial natural gas markets, including on the New York Mercantile Exchange ("NYMEX") and the Intercontinental Exchange ("ICE"). The plaintiffs allege that Total Gas & Power North America, Inc. ("TGPNA"), Total, S.A. ("Total"), and Total Gas & Power Limited ("TGPL") (the "defendants") manipulated the price of physical natural gas at four regional hubs in the southwestern United States between 2009 and 2012. They further allege that such manipulation caused economic harm to the plaintiffs' physical and financial natural gas contracts—which contracts were tied to natural gas prices at a separate hub, the Henry Hub in Louisiana—on the theory that manipulation at the regional hubs inevitably impacts prices at the Henry Hub.

All defendants now move to dismiss the consolidated amended complaint ("CAC") for lack of Article III standing and failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Total and TGPL ("the foreign defendants") also move to dismiss the CAC under Rule 12(b)(2) for lack of personal jurisdiction. This Court has subject matter jurisdiction pursuant to 7 U.S.C. § 25, 15 U.S.C. § 2, 15 U.S.C. § 15, and 28 U.S.C. §§ 1331 and 1337.

For the reasons explained below, the motions to dismiss for failure to state a claim are granted.

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor.

McCarthy v. Dun & Bradstreet Corp. , 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden , 754 F.2d 1059, 1067 (2d Cir. 1985). A complaint should not be dismissed if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 57, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While factual allegations should be construed in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Id. ; see also In re Lions Gate Entm't Corp. Sec. Litig. , 165 F.Supp.3d 1, 5–6 (S.D.N.Y. 2016).

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc. , 282 F.3d 147, 153 (2d Cir. 2002) ; see also Plumbers & Pipefitters Nat'l Pension Fund v. Orthofix Int'l N.V. , 89 F.Supp.3d 602, 607–08 (S.D.N.Y. 2015).

II.

The following facts alleged in the CAC are accepted as true for purposes of the defendants' motions to dismiss.

A.

The North American natural gas market consists of a physical market and a financial market. On the physical market, actual natural gas is produced, stored, bought, sold, and consumed. See CAC ¶ 37. On the financial market, intangible financial products derived from physical natural gas are traded over-the-counter or on public markets. See id. Part of the physical natural gas market consists of "on the spot" sales in which a buyer agrees to pay a negotiated price for natural gas to be delivered by the seller at a specified delivery point the following day. Id. ¶ 43. "Spot" prices reflect daily supply and demand balances and are tied to individual regional hubs—that is, to the "specific points where pipeline interconnections allow the transfer of gas from one pipeline to another"—with prices "varying with the demand characteristics of the market, as well as the region's access to different supply basins, pipelines and storage facilities." Id. ¶¶ 3, 39, 44. One of those hubs—the Henry Hub, located in Louisiana—"has become the dominant benchmark point in the physical natural gas market because of its strategic location" and the "number of pipeline connections to the East Coast and Midwest consumption centers" located there. Id. ¶ 40.

Several publications, including Platts Gas Daily ("Platts"), Natural Gas Intelligence ("NGI"), and Natural Gas Week, "survey the market for daily transaction prices" at each delivery hub, which are used to "determine and publish a daily index" made available prior to the next business day. Id. ¶ 44. Physical natural gas transactions call for delivery at a specified delivery hub and are based on either "fixed prices"—which are negotiated at the time of the transaction—or "index prices," which are determined each month by trading information reported to Platts and NGI. Id. ¶¶ 5–6. Monthly index prices are based on the volume-weighted average price of all reported fixed price physical natural gas transactions which occur during a monthly settlement period—the last five business days of each month—known as "bidweek." Id. ¶ 6. In other words, fixed priced trades made during a bidweek produce the monthly index price at a given hub.

Accordingly, there are monthly index settlement prices for physical natural gas at each delivery hub, including the Henry Hub. Those monthly index prices form the basis of and "are factored directly into the price of natural gas financial products," including, as relevant here, natural gas futures contracts traded on the NYMEX. Id. ¶¶ 6, 49. A futures contract "is an agreement for the purchase or sale of a particular commodity for delivery on a fixed date in a future month." Id. ¶ 51. A futures contract both "minimizes exposure to price risk by locking in a price to pay, or receive" natural gas delivery, and also enables traders to speculate on natural gas prices. Id. ¶ 52. "The prices of physical and futures natural gas contracts are inextricably linked" such that, as expectations change regarding what the price of natural gas will be at a particular hub on the fixed delivery date, the value of the futures contract for delivery at that hub will likewise change. Id. ¶ 50. Although futures prices can exert influence on physical prices over long horizons, short-term fluctuations in the physical "spot" market at a particular hub can cause futures contracts with upcoming delivery dates to "fluctuate significantly and rapidly." Id.

At the center of this case is a specific kind of natural gas futures contract—a NYMEX natural gas futures contract. Each such contract is a contract for 10,000 million British thermal units of natural gas to be delivered to the Henry Hub. Id. ¶¶ 3, 57. Prices for NYMEX natural gas futures contracts are "based on physical delivery of natural gas at the Henry Hub," such that the price for natural gas delivered to that hub forms the basis of the "settlement price" of the futures contract. Id. ¶¶ 57–59. "The differential value between [physical] natural gas prices at one delivery hub compared to the natural gas futures prices traded on the [NYMEX] is known as ‘basis.’ " Id. ¶ 3. In other words, natural gas futures contracts traded on NYMEX derive their prices—and, accordingly, their value—from the spot price of natural gas at the Henry Hub, and Henry Hub prices have "become the standard basis reference point" for natural gas prices at other hubs throughout the United States and Canada. Id. ¶ 3; see id. ¶ 39. The vast majority of NYMEX natural gas futures contracts do not result in the delivery of physical natural gas at the Henry Hub; rather, they "are liquidated or cancelled by purchasing or selling a covering futures position prior to the delivery date." Id. ¶ 56.

Henry Hub prices are used as a standardized reference point within the natural gas market because "Henry Hub is the most liquid and active of the physical and futures markets." Id. ¶ 3. Thus, natural gas prices at other regional hubs "are often quoted as a ‘differential’ between prices at the Henry Hub and [that] regional hub." Id. Physical natural gas at individual regional hubs ...