Appeal from an order of the United States District Court for the Southern District of New York (Walker, J.), which granted appellees' motions for summary judgment in this complex antitrust case. Affirmed in part, reversed in part and remanded.
Before: PIERCE and ALTIMARI, Circuit Judges, and SPRIZZO, District Judge.*fn*
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.
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, expect 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 hearing 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.
In light of the complexity and mass of material presented by the parties here, we briefly summarize what appear to us to be undisputed facts concerning the subject February 1982 No. 2 hearing 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*fn1 (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 (also known as book) transfer, tanker, barge or truck. Inventory transfer entails transfer of title of oil without actually moving or delivering it.
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.
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 inflexible.
According to Apex, this pattern was broken in February 1982. Apex alleges that the long defendants, aided by DiMauro, a broker, and by the Exchange and Raber, conspired to nominate an inordinate number of their contracts for the first three delivery days of February. There is no dispute that the defendants actually did nominate a large number of contracts for the first few days. Indeed, in over 75 % of the long defendants' 1,945 nominations, delivery was demanded for one of the first three delivery days. Significantly, fewer than 25 % of long positions held by non-defendants were nominated for the first three days. Further, our calculations indicate that while over half of the contract held by defendants were nominated for the first day of delivery, only about 10 % of contracts held by non-defendants were nominated for the first day. Apex alleges, and the defendants deny, that a conspiracy among the defendants were responsible for this nomination pattern.
There is evidence that on February 3, a broker representing several long interests passed along a rumor on the Exchange floor that Apex would not be able to make delivery. That afternoon, the Exchange Control Committee convened for the purpose of resolving any market problem. Apparently, the broker repeated his statement regarding the possibility of an Apex default and also stated that "one or two" of his customers were "out to get Apex." The record indicates that similar rumors circulated among a number of other brokers and oil companies.
On the next day, February 4, Apex's broker, Goldman, represented to the Exchange Control Committee that Apex would not default, claiming that it expected to receive 750,000 barrels form Amoco and that it expected to have another 400,000 barrels available at GATX. However, on February 5, Goldman told the committee that Apex no longer expected to have the oil available at GATX for deliveries nominated for February 6, 7 or 8. Apex apparently only had available approximately 30,000 barrels of No. 2 oil at GATX on February 5.
Meanwhile, on February 4 and 5 the Exchange Control Committee asked several clearing members to suggest that their customers holding long positions agree to change delivery dates and sites. Apex alleges that its own requests to change delivery dates, methods or sites were either ignored or rejected by the long defendants. The long defendants do not appear to contest this allegation. Apex further alleges that this inflexibility was the result of a conspiracy among the defendants to "squeeze" Apex by forcing it to deliver an enormous amount of oil on short notice. As a result of this inflexibility, Apex claims that it was forced to purchase oil from the long defendants at inflated prices in order to meet its delivery obligations. Indeed, there is evidence that while the closing price for February contracts was 89.7 cents per gallon, Apex paid prices as high as 97.5 cents per gallon to several long defendants for oil that was immediately delivered back to the long defendants to satisfy Apex's delivery obligations These purchases of oil enabled Apex to avoid a default.
The gravamen of Apex's claims is that the defendants conspired to "squeeze" Apex: the long defendants, DiMauro, TIC, and Triad did so by manipulating the market; Raber and the Exchange by assisting or failing to prevent the other defendants from manipulating the market. The amended complaint asserts eight "claims for relief," which can be placed into four categories.
1. Antitrust Conspiracy. Apex alleges four Sherman Act claims; treble damages are requested. Three claims allege violations of section 1 of the Act and one alleges a violation of section 2. See 15 U.S.C. §§ 1, 2.
The first claim asserts that the long defendants and the exchange defendants conspired to nominate for early delivery in violation of section 1 of the Act. The early nominations allegedly enabled the long defendants to "manipulate, raise, maintain, stabilize and/or fix the price of No. 2 Heating Oil" by creating an "artificial shortage." Amended Complaint paras. 46-52; see 15 U.S.C. § 1.
The second claim alleges that the long defendants conspired to refuse to deal with Apex by refusing to sell No. 2 oil to Apex, thereby weakening Apex's position as a competitor and creating an artificially high price for the oil. Amended Complaint paras. 53-59; see 15 U.S.C. § 1.
The third claim asserts that the long defendants conspired to prevent other sources of No. 2 oil from supplying it to Apex, thereby artificially raising the price for the oil. ...