SK Trading Int'l Co. v. Superior Court of S.F. Cnty.

• Decision Date: 21 March 2022
• Docket Number: A163590
• Citation: 77 Cal.App.5th 378,292 Cal.Rptr.3d 246
• Parties: SK TRADING INTERNATIONAL CO. LTD., Petitioner, v. The SUPERIOR COURT OF SAN FRANCISCO COUNTY, Respondent; The People, Real Party in Interest.
• Court: California Court of Appeals Court of Appeals

77 Cal.App.5th 378

292 Cal.Rptr.3d 246

SK TRADING INTERNATIONAL CO. LTD., Petitioner,

v. The SUPERIOR COURT OF SAN FRANCISCO COUNTY, Respondent;The People, Real Party in Interest.

A163590

Court of Appeal, First District, Division 4, California.

Filed March 21, 2022

COVINGTON & BURLING LLP, Robert A. Long, Jeffrey M. Davidson, Phillip Warren, San Francisco, Hannah M. Chartoff, K&L GATES LLP, Michael E. Martinez, Lauren Norris Donahue, for petitioner.

No appearance for respondent.

Rob Bonta, Attorney General, Kathleen Foote, Senior Assistant Attorney General, Michael W. Jorgenson, Supervising Deputy Attorney General, Ryan J. McCauley, Divya B. Rao, Nicole S. Gordon, and Eric J. Chang, Deputy Attorneys General, for real party in interest.

POLLAK, P. J.

These writ proceedings arise out of an action brought by the People of the State of California against several oil and gas firms alleging their participation in a multiyear conspiracy to manipulate the California gasoline market to the detriment of California consumers. Defendant SK Trading International Co. LTD (SK Trading), a South Korean corporation, has petitioned for a writ of mandate to compel the trial court to reverse its order denying its motion to quash service of the summons for lack of personal jurisdiction. SK Trading argues that its limited contacts with California are insufficient to support the court's exercise of specific personal jurisdiction. We disagree and shall deny the petition.

Factual and Procedural Background

On May 4, 2020, the Attorney General filed the present action against petitioner SK Trading, SK Energy Americas, Inc. (SK Energy), a California Corporation and subsidiary of SK Trading, and Vitol Inc. (Vitol), a Delaware Corporation. The complaint alleges violations of the Cartwright Act, Business and Professions Code ¹ section 16720 et seq., and the Unfair Competition Law, section 17200 et seq. The complaint generally refers to SK Trading and SK Energy collectively as the SK defendants or SK. The pleading alleges that SK Energy "functioned as the California trading arm" of SK Trading, that SK Energy's trading was conducted within the "continuous and pervasive control and supervision" of SK Trading, that SK Trading was "directly involved in nearly every aspect" of the employment of SK Energy's head trader, and that SK Trading "specifically reviewed and approved key decisions to coordinate certain trading activities with Vitol."

The complaint provides the following background information on the gasoline market in California: "California has vehicle emissions standards that are more stringent than the rest of the country. Gasoline produced pursuant to these standards is called California Reformulated Gasoline Blendstock for Oxygenate Blending (‘CARBOB’). The CARBOB specifications are unique to California; therefore, gasoline used in neighboring states generally does not meet CARBOB specification and cannot be used as a substitute source of supply."

Gasoline for physical delivery within a short time frame is bought and sold on "spot markets." California has two spot markets, one for delivery in Northern California and the other for delivery in Southern California. Prices on the California spot markets are "usually but not always higher" than prices on other gasoline markets. Spot market trades in California "are traded through non-public transactions, sometimes called over-the-counter (‘OTC’) trades. These OTC transactions do not occur on a centralized open exchange ..., so prices on the California spot markets are not immediately public. Instead, market participants rely on price-reporting services that report spot market prices from sources that participate in the market, such as traders, refiners, and brokers. [¶] ... The Oil Price Information Service, LLC (‘OPIS’) is the most widely used reporting service in California." The Commodity Exchange Act, which governs the spot market trading in California prohibits a transaction that "is, of the character of, or commonly known to the trade as, a ‘wash sale’ or ‘accommodation trade’ " ( 7 U.S.C. § 6c(a)(2)(A)(i) ) and prohibits a transaction that "is used to cause any price to be reported, registered, or recorded that is not a true and bona fide price." ( 7 U.S.C. § 6c(a)(2)(B).) A "wash trade" is defined by defendants as "a prearranged, round-turn transaction executed to avoid taking a bona fide position in the market and/or the risk of price competition."

The complaint alleges that beginning in late 2014 through 2015, defendants entered into agreements with each other "to drive up and manipulate the spot market price for gasoline so that they could realize windfall profits on these large contracts to deliver gasoline and gasoline blending components." The complaint alleges, "The goal of the scheme was simple: to drive up or stabilize the OPIS-reported price during pricing windows and to realize supra-competitive profits while limiting bona fide market risk. [¶] ... While tactics employed by Vitol and SK during the scheme varied and were often complex, there were two primary components: (1) engage in trades that were reported to OPIS for the purpose of inflating the OPIS-published price in the spot Market Report, and (2) execute facilitating trades to hide or disguise the nature of the scheme, to limit or eliminate bona fide market risk on the reported trades, and to share profits with each other." For example, defendants might complete an initial transaction during the early trading hours at an inflated price so that OPIS would report an inflated purchase price to other market participants, signaling artificially high demand. Then, defendants would conduct a second trade, which was not reported to OPIS, that was "in the opposite direction of the OPIS-reported trade. This type of round-trip or round-turn facilitating trade ... effectively negated the volume of gasoline purportedly exchanged in the OPIS-reported trade" and "ensured that no gasoline would actually change hands as a result of the OPIS- reported trade that inflated the price reported in the Spot Market Report." While the prices were artificially high, defendants were able to reap "extraordinary and supra-competitive profits."

The complaint alleges "alliances or joint ventures" between Vitol and the SK defendants were "a crucial component" to the success of the scheme. The "alliances or joint ventures" were "not reduced to writing between the companies" and defendants "took steps not to reveal the nature of these agreements to other market participants." "While the so-called ‘joint venture’ agreements were being reached, SK and Vitol engaged in the trading manipulation described above to benefit their common interest. Therefore, while it may have appeared to market participants that Vitol and SK were competitors, in fact the two companies were working together. Despite the terminology used, the ‘joint ventures’ were effectively a sham or pretext for cooperation and were a method of engaging in prearranged transactions and avoiding competition."

The complaint alleges California consumers paid for defendants’ increased profits through inflated prices at the pump.

SK Trading moved to quash service of the summons on the ground that the court lacked personal jurisdiction over it. It argued that the company has never had a presence in California or conducted business within the state, and has never exercised control over SK Energy's day-to-day operations. It asserted that SK Trading "has never executed a trade of physical gasoline in California or entered into a futures contract related to the California gasoline market. It has never entered into a contract to buy or sell physical gasoline or a futures contract related to the California gasoline market. Nor has it ever entered into a joint venture or other collaborative arrangement with another company in California."

Evidence of the following undisputed facts was produced in jurisdictional discovery: In January 2014, SK Trading conducted its "1st Half 2014 Strategic Meeting" at which it set forth a plan to improve SK Energy's profits from trading on the spot market in California. The plan encouraged SK Energy to hire a new trader with California gasoline trading experience and expertise and called for the promotion of "alliances" or "joint ventures" between SK Energy and other gas firms. Thereafter, a business plan was drafted for SK Energy incorporating the strategies previously discussed.

SK Trading subsequently supported and approved the hiring of former Vitol trader David Niemann as SK Energy's new west coast gasoline trader. SK Trading received background information on potential hires, including their trading history and likelihood of being recruited. SK Trading organized the information that SK Energy provided to its personnel committee in support of its decision to hire Niemann. A SK Trading executive interviewed Niemann at SK Energy's headquarters in Houston and provided final approval for his hire. The SK Trading executive then reported to the SK Trading CEO that he supported hiring Niemann "given his focus on teamwork, clear views based on more than 20 years of experience in the [United States West Coast] market, and decent attitudes." Niemann thought of SK Trading as his "management" and accused SK Trading of "micromanaging every little aspect of the finances."

Executives of both SK Trading and SK Energy met regularly with Vitol executives throughout 2014 and 2015. In early 2015, SK Trading's CEO reported on a meeting with Vitol's CEO and Global Distillates Bookleader, among others, at which they "exchanged opinions on the overall issues of the oil industry such as oil prices" and "Vitol agreed to make mutual efforts to develop cooperative projects with SK." In July 2016, a SK Trading executive visited Houston to meet with, among others, Vitol's west coast gasoline trader. Vitol's trader informed him that Vitol "has been achieving good performance record last year and this year...