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April 18, 1990


The opinion of the court was delivered by: William C. Conner, District Judge:


This action under the antitrust and commodity laws is before the Court on defendants' motion for summary judgment.


Plaintiff Transnor (Bermuda) Ltd. ("Transnor") is a corporation established under the laws of Bermuda and with its principal place of business there. Transnor's suit arises out of its purchase of two cargoes of North Sea Crude Oil in December 1985 at an average price of $24.50 per barrel for delivery in Scotland in March 1986. Transnor refused to take delivery of these cargoes because their market value had declined after Transnor entered into the contracts.*fn1

Transnor claims that remaining defendants Conoco Inc., Conoco (U.K.) Ltd. (collectively "Conoco") and Exxon Corporation ("Exxon"), conspired with the settling defendants*fn2 to cause a decline in crude oil prices by jointly selling cargoes of Brent blend crude oil ("Brent Oil") at below-market prices. Brent Oil is a blend of oils produced in various fields in the North Sea and delivered through pipelines for loading onto cargo ships at Sullem Voe in the Shetland Islands. By the end of March 1986, the price of a barrel of Brent Oil had dropped substantially to $13.80 per barrel, from $29.05 per barrel in November 1985. Transnor asserts claims against defendants for violations of the Sherman Act, 15 U.S.C. § 1 (1982), and sections 4(c), 6(b), and 6(a) of the Commodity Exchange Act ("CEA"), 7 U.S.C. § 6(c), 9 and 13(b) (1980 & 1989 Supp.).

Defendants have moved for summary judgment pursuant to Rule 56, Fed.R.Civ.P. on the grounds that (1) Transnor lacks standing to sue under the antitrust laws and the CEA or, alternatively, that the Court should decline to exercise jurisdiction under principles of comity and international law; (2) there is no evidence that defendants conspired to drive down the price of oil in violation of the antitrust laws; (3) Transnor's injury is not cognizable under Section 4 of the Clayton Act, 15 U.S.C. § 15 (1973 & 1990 Supp.) because there is no evidence that defendants' behavior caused oil prices to fall; and (4) defendants' conduct was neither governed by nor in violation of the CEA. For the following reasons, the motion is denied.


Defendants first move for summary judgment on the ground that Transnor lacks standing under both the Sherman Act, 15 U.S.C. § 1 et seq. and the Commodity Exchange Act, 7 U.S.C. § 1 et seq. In an opinion and order dated August 5, 1987 ("Order"), this Court denied defendants' motion to dismiss pursuant to Rule 12, Fed.R.Civ.P. Transnor (Bermuda) Ltd. v. BP North America Petroleum, 666 F. Supp. 581 (S.D.N.Y. 1987). One of the grounds advanced by defendants for dismissal was that Transnor lacked standing under the antitrust and commodity laws. Accepting the facts alleged by Transnor as true, as a court must on a motion to dismiss, I found that the Brent Oil Market, in which Transnor allegedly suffered its injury, is "primarily a U.S. market," or at least a "part of U.S. commerce." Id. at 583. The Court accordingly held that Transnor had standing under U.S. antitrust and commodity laws.

Defendants then moved the Court to certify for immediate appeal the question of "whether Transnor, a foreign corporation which engaged in no business in this country, has standing to sue for injuries allegedly suffered in wholly foreign trading on an international market merely because it is alleged that there are U.S. participants trading in that market as well." The Court denied the motion because the question for certification had misstated the underlying basis for the Court's initial ruling, in which the Court specifically accepted as true Transnor's unrefuted allegation that the Brent Market is a U.S. market and not merely an international market. Transnor (Bermuda) Ltd. v. BP North America Petroleum, 677 F. Supp. 777 (S.D.N.Y. 1988). The Court thereafter stated that,

  [i]f, after conducting pre-trial discovery,
  defendants uncover evidence indicating that the
  Brent Market is indeed an international market
  with no direct impact on

  U.S. commerce, then it may be appropriate for them
  to move for summary judgment on the ground that
  plaintiff lacks standing under the antitrust laws.

Id. at 778. Defendants now move accordingly for summary judgment, insisting that the undisputed facts demonstrate that the Brent Market is an international market and that Transnor, therefore, lacks standing under U.S. antitrust and commodity laws.

While U.S. antitrust laws give this Court jurisdiction over antitrust claims that arise from actions directly affecting U.S. commerce, only persons or corporations injured while trading in U.S. foreign or domestic commerce have the standing necessary to bring such claims.*fn3 In de Atucha v. Commodity Exchange, Inc., 608 F. Supp. 510 (S.D.N.Y. 1985), the district court held that foreigners who trade "exclusively" on a foreign exchange do not have standing under either U.S. antitrust or commodity laws. The court noted that "the first prerequisite to a determination that a plaintiff was injured in `the relevant market' is a finding that the market is part of American foreign or domestic commerce." Id. at 518. Because Transnor's claims rest on injury from anticompetitive activity in the Brent Market, the issue presented here is whether the Brent Market is a part of American foreign or domestic commerce or is an exclusively foreign market.

According to Judge Lasker in de Atucha, "Congress did not contemplate recovery under the antitrust laws by an individual who traded, and was injured entirely outside of United States commerce." Id. at 518. The court further held that "such transactions were not intended to be and are not regulated under the [CEA]." Id. at 523. Judge Lasker then found that the plaintiff, having traded on an exclusively foreign market, lacked standing. This case, however, presents a wholly different situation wherein the plaintiff claims that the market on which it traded was a U.S. market or had a direct impact on U.S. commerce, a nexus with the United States sufficient to invoke standing.

Because 95% of the trades in the Brent Market are made for speculative or hedging purposes not calling for actual delivery of the oil, the appropriate inquiry involves a consideration of the location of the trading market. The location of the production area and the delivery point are manifestly much less relevant. See Transnor (Bermuda) Ltd. v. BP North America Petroleum, 666 F. Supp. 581, 583 (S.D.N.Y. 1987). Where the contracts at issue were made is equally unimportant if the market itself is considered a U.S. market or directly impacts U.S. commerce. See id. A plaintiff should not be penalized for the utilization of a foreign branch of a market instead of an equally accessible American branch. As this Court has previously stated, Transnor's choice to purchase the contracts through the London branch, rather than in New York or Houston, "does not lessen Transnor's ability to vindicate Congress's clearly expressed desire that foreigners have standing to sue under the U.S. antitrust laws if the alleged course of anti-competitive conduct has the requisite impact on U.S. commerce." Transnor, 666 F. Supp. at 584.

The unrefuted evidence establishes that of the 109 traders and brokers Transnor knew to be active in the Brent Market, 88 had offices located in the United States and at least 6 traded exclusively in the United States. It is further uncontested that two of the three principal trading centers of the Brent Market are located in the United States, specifically, New York and Boston.

Where the market in question has even slight direct ties to U.S. commerce, that market is not an exclusively foreign market and is therefore deemed a U.S. market. While the Brent Market may be a substantially foreign market, Transnor has presented sufficient proof that the Brent Market is not an exclusively foreign market, and thus a U.S. market.

Moreover, Brent Oil is imported into the United States and it may be delivered to fulfill Light Sweet crude oil contracts traded on the New York Mercantile Exchange. These indirect ties to U.S. commerce further support the determination that Transnor has standing to assert claims arising from trades executed on the Brent Market. Accordingly, the Court concludes that Transnor has standing under U.S. antitrust and commodity laws.


Defendants next move this Court to stay its hand under principles of comity and international law, claiming that an assertion of jurisdiction by this Court would "affront legitimate and powerful British interests." In evaluating the interests of a foreign government prior to determining whether to assert jurisdiction over a transaction occurring outside the United States, the courts have generally applied a "jurisdictional rule of reason," which seeks to balance the competing interests asserted. The parties agree that the applicable principles of comity among nations is set forth in Timberlane Lumber Co. v. Bank of America Nat'l Trust & Sav. Ass'n, 749 F.2d 1378 (9th Cir. 1984), cert. denied, 472 U.S. 1032, 105 S.Ct. 3514, 87 L.Ed.2d 643 (1985). They disagree, however, on the application of the seven principles espoused by Timberlane to the facts at hand. For the following reasons, the Court finds that comity principles do not compel the Court to decline to exercise jurisdiction.

The Court must first determine whether the extraterritorial enforcement of United States antitrust and commodity laws create an actual or potential conflict with the laws and policies of other nations. Defendants assert that the Securities and Investments Board ("SIB") — the British government agency with jurisdiction over United Kingdom ("U.K.") financial markets — has adopted a Consultive Document on the Future Regulation of the Oil Markets and an Oil Market Code of Conduct in February and March 1988, which presents guidelines for the forward trading of Brent Oil, and that SIB intends to promulgate regulations thereon. Transnor contends that defendants' speculation on the future action of SIB does not create a conflict with foreign law or policy. Transnor also states that no binding regulation of Brent Market trading presently exists in the U.K. The Court agrees with Transnor that application of U.S. antitrust and commodity laws does not create either an actual or potential conflict with existing British government regulation of Brent Market transactions. That a conflict may arise in the future should the British government act is too uncertain to weigh against the exercise of jurisdiction.

Next to be weighed are the headquarters and other office locations of the party corporations, as well as citizenship of persons involved in the alleged illegal conduct. In this case, of the three remaining defendants, Conoco Inc. and Exxon are U.S. corporations, headquartered in the U.S., and Conoco (U.K.) Limited is a subsidiary of Conoco Inc., controlled and directed by its parent. Transnor, a Bermuda corporation, transacted business internationally. Although the relevant transactions were effected through the London branch of the Brent Market, the parties' ties to the United States are stronger than those to the United Kingdom.

Also considered is the extent to which enforcement by either state can be expected to achieve compliance. In this case, compliance with the applicable statutes can be achieved only in the United States because there is no comparable regulation of the Brent Market in the U.K. and defendants offer no evidence that U.S. interests under the pertinent statutes can be vindicated abroad. Therefore, compliance with American law can only be assured in the United States.

The Court next turns to the relative significance of the effects of the alleged illegal conduct on the domestic and foreign commerce of the United States and on commerce elsewhere. Transnor maintains and defendants admit that defendants' trading of Brent Market contracts took place mainly in the United States. It is defendants' alleged conduct in the United States which gave rise to this action. Because two of the three branches of the Brent Market are in the United States, as mentioned earlier, defendants' alleged conduct has clearly impacted U.S. commerce. This Court recognizes, of course, the equally significant impact on U.K. and international commerce. Consequently, this factor neither favors nor disfavors the exercise of jurisdiction.

The Court must also consider whether defendants' actions were intended to harm or affect American commerce or the foreseeability of such effect. Transnor's complaint alleges that defendants engaged in conduct intended to depress market prices. In its submissions in opposition to the motion for summary judgment, Transnor has sufficiently demonstrated that, at the least, there are issues of fact as to whether defendants intended to affect U.S. commerce or should reasonably have foreseen such an impact. These fact issues preclude summary denial of jurisdiction on the ground of lack of the necessary scienter.

Finally, a court should weigh the location of the alleged illegal conduct in order to assess the appropriateness of the exercise of extraterritorial jurisdiction. Transnor claims that the United States was the center of the illegal conduct charged. While defendants refute the substance of the charges in the complaint, they do not specifically deny that this conduct is alleged to have taken place in the United States. Clearly then, the U.S. is an important locus, if not the hub, of defendants' alleged manipulation.

With all factors considered, both a quantitative and a qualitative tally favor the exercise of jurisdiction by this Court — a result which should not affront British interests.


Standard for Summary Judgment

A party seeking summary judgment must demonstrate that "there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c); Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). It must establish that there is a "genuine issue for trial." Id. at 587, 106 S.Ct. at 1356. "In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight, 804 F.2d at 11.

Description of Tax Spinning

Transnor claims that defendants carried out their conspiracy through "tax spinning" — the arm's-length sale by an integrated oil producer to a third party and a substantially simultaneous purchase of a similar quantity of oil at substantially the same price for use in that producer's refineries — which, depending on the relation between the average market price and the price at which the trades were made, created the possibility of substantial tax savings under U.K. tax law. The crux of Transnor's claim is that from approximately November 1985 through mid-March 1986, defendants conspired to tax spin Brent Oil at below-market prices in order to reduce the U.K. taxes paid by defendants. Transnor also claims that the artificially reduced price of the spin sales drove down the market price of Brent Oil, a benchmark crude oil, as well as that of other crude oils such as West Texas Intermediate ("WTI"), an oil traded on the New York Mercantile Exchange, with which Brent Oil is virtually interchangeable.

Under the U.K. Oil Taxation Act of 1975 ("Taxation Act"), the applicable petroleum revenue tax rate between April 2, 1985 and March 31, 1986 was 87%. Under the then-applicable provisions of the Taxation Act, the taxed price on sales of oil differed depending on whether the sale was at arm's length on the open market or the oil was transferred directly to an integrated producer's affiliated entity. Transfers to affiliated companies were taxed at an assessed market value, known as the tax reference price ("TRP"), which, beginning in 1984, was determined by the Inland Revenue's Oil Taxation Office ("OTO") based on an average of prices established retrospectively for a period of time prior to the interaffiliate transfer. Defendants argue that because of declining oil prices from other causes, primarily the excess supply in the world oil market caused by OPEC, the TRP was higher than the current market price and thus led to payment of taxes on sales to affiliated entities based on an artificially high rate. Rather than pay taxes based on such an inflated price, defendants entered into matched buy/sell transactions in the open market instead of transferring oil directly to their refineries. Defendants claim that tax spinning thus resulted in payment of taxes based on a more accurate market rate, not, as Transnor claims, at below-market rates. This would furnish a logical explanation of tax spinning if it was done only in a declining market, in which the tax-spin transactions were at an actual market price lower than the TRP — i.e. lower than the average market prices over the past month. Whether the tax spinning was done only in such circumstances is unclear from the present record.

Both parties spend considerable energy debating whether these transfers violate U.K. tax law. In brief, Transnor contends that while it was legal for an integrated oil company to sell its oil in the open market and to buy oil for its own needs, it was not legal to enter into a large number of matched buy/sell contracts at the same price in order to establish a "portfolio" of contracts for delivery months in the future. Defendants held these contracts open until the delivery month and then selected from their "portfolio" the lowest-priced sale and assigned to it oil they produced that month, known as "equity production." Producers were also able to choose among their affiliated businesses in assigning the sale, which was then reported to the tax authorities as the arms-length price at which they sold their equity production. In order to balance its portfolio for the month, other buy/sells for that month would be disposed of by "booking out"*fn5 or by entering into an offsetting transaction.

Defendants offer a lengthy explanation for the legality of their behavior and note that after reviewing data concerning all of their Brent transactions during the relevant period, the OTO subsequently approved the portions of Conoco's and Exxon's tax returns that Transnor now challenges. Defendants state that Conoco informed the OTO that when multiple sales and purchases were made in a given delivery month, it reported the lowest-priced transaction as the arms-length sale.*fn6

Economic Incentive to Lower Prices

Defendants argue that they had no financial motive to encourage low, rather than high, crude oil prices and thus Transnor cannot meet its increased burden to defeat summary judgment.*fn7 Transnor claims that defendants had the following financial incentives to encourage lower crude oil prices. First, defendants are companies, or affiliates of companies, which not only produce and refine crude oil, but also market crude oil and petroleum products made from crude oil. Lower crude prices would allow defendants to obtain higher profit margins in their sales of "downstream" refinery products, more than offsetting losses from sales ...

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