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In Re Commodity Exchange

March 15, 2013


The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.



Plaintiffs in this action are a proposed class of individuals who transacted in COMEX silver futures and options contracts on June 26, 2007 and also between March 17, 2008 and October 27, 2010 (the "Class Period"). On September 12, 2011, Plaintiffs filed a consolidated class action complaint (the "First Complaint") against J.P. Morgan Chase & Co., J.P. Morgan Clearing Corp., J.P. Morgan Securities Inc., and J.P. Morgan Futures Inc. (together, "JPMorgan"), as well as twenty unnamed "John Doe" Defendants (collectively, "Defendants"). (Compl. ¶¶ 1-2, 22-29, 199-210, ECF No. 85.) Plaintiffs' First Complaint alleged that Defendants had violated Sections 9(a) and 22(a) of the Commodity Exchange Act, 7 U.S.C. §§ 13(a), 25(a), and Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. (Id.)

On December 21, 2012, this Court issued an Opinion and Order (the "Opinion") dismissing Plaintiffs' First Complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Op. at 40, Dec. 21, 2012, ECF No. 127.) In so doing, the Court ruled that Plaintiffs had failed under the pleading standard set forth by Rule 8(a) to allege adequately scienter, the existence of artificial prices, or causation as required by the Commodity Exchange Act. (Op. at 23-34.) The Court further ruled that Plaintiffs had failed to state factual allegations adequate to allege the existence of a conspiracy to manipulate market prices as required by the Sherman Antitrust Act. (Op. at 35-38.) Finally, because Plaintiffs had stated at oral argument and in a letter to the Court that they had "alleged all [they] realistically could," (see Op. at 39), the Court gave Plaintiffs thirty days from the date of the Opinion's publication to show "good cause" as to why leave to amend was necessary, (Op. at 40).


On January 22, 2013, Plaintiffs filed a Motion for Leave to File an Amended Consolidated Class Action Complaint (the "Motion"). (Pls.' Mot. for Leave to File Am. Consol. Compl., ECF No. 129; see also Pls.' Mot. for Leave to File Corrected Am. Consol. Compl., ECF No. 131; Mem. in Supp. of Pls. Mot. for Leave to File Corrected Am. Consol. Compl. ("Pls. Mem."), ECF No. 132.) Attached to this Motion was a proposed amended consolidated class action complaint (the "Proposed Amended Complaint"). Plaintiffs argued that they should be permitted to file this Proposed Amended Complaint because (1) "the law favors permitting leave to amend;" (2) they had added specific, "multiple additional details and facts" that addressed the gaps identified by the Court in its Opinion; and (3) they believed grounds existed to add a new claim alleging a Sherman Act Section 2 monopolization claim against the Defendants. (Pls. Mem. at 1.)

On February 8, 2013, Defendants filed a memorandum in opposition arguing that Plaintiffs' Motion should be denied because the Proposed Amended Complaint still failed to adequately allege a violation of the Commodity Exchange Act or Sherman Antitrust Act. (Defs.' Mem. in Opp'n to Mot. for Leave to File Am. Consol. Compl. ("Opp'n Mem."), ECF No. 139; see also Decl. of Amanda F. Davidoff in Supp. of Defs.' Opp'n Mem. ("Davidoff Decl."), Feb. 8, 2013, ECF No. 140.) Defendants further argued that the Proposed Amended Complaint was futile and "dilatory," and that granting Plaintiffs' Motion would "both cause JPMorgan undue prejudice and waste judicial resources." (Opp'n Mem. at 7.) Plaintiffs filed a memorandum in reply on February 19, 2013. (Reply Mem. in Supp. of Pls.' Mot. for Leave to File Am. Consol. Compl. ("Reply Mem."), ECF No. 144.)


"The grant or denial of an opportunity to amend [a complaint] is within the discretion of the district court." Foman v. Davis, 371 U.S. 178, 182 (1962). Pursuant to Rule 15 of the Federal Rules of Civil Procedure, however, a court must "freely grant leave [to amend] when justice so requires." Fed. R. Civ. P. 15(a)(2). Justice does not require granting leave to amend when a proposed amendment would be futile, made in bad faith, result in undue delay, or cause prejudice to the opposing party. Holmes v. Grubman, 568 F.3d 329, 334 (2d Cir. 2009); see also Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126 (2d Cir. 2008) ("[M]otions to amend should generally be denied in instances of futility, undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, or undue prejudice to the non-moving party."). Finally, when a "moving party has had an opportunity to assert [an] amendment earlier, but has waited until after judgment before requesting leave" to add a new claim, a court may "exercise its discretion [in considering leave to amend] more exactingly." State Trading Corp. of India v. Assuranceforeningen Skuld, 921 F.2d 409, 418 (2d Cir. 1990).


A.Plaintiffs have failed to show good cause as to why they should be granted leave to file the Proposed Amended Complaint since the proposed allegations are insufficient to establish a claim under the Commodity Exchange Act.

1. JPMorgan's Alleged Concentrated Large Short Positions

Plaintiffs first argue that they should be granted leave to file their Proposed Amended Complaint because it contains facts sufficient to show that JPMorgan "uneconomically and intentionally caused COMEX prices to be artificially low." (Pls. Mem. 2-4.) Specifically, Plaintiffs state that they have added "new allegations relating to JPMorgan's concentrated short position and its effect on COMEX silver futures prices, as well as the fact that COMEX prices accomplished 92%-100% of the price discovery and led London silver prices and [the] world's silver prices throughout the Class Period." (Pls. Mem. at 2-3 (citing Am. Compl. ¶ 137(a)-(z)).) To support this claim, Plaintiffs plead numerous statistics that speak to "the existence of a large concentration" of short positions in the COMEX silver futures market. (Am. Compl. ¶ 137(i).) Plaintiffs claim that these statistics, along with information contained in the 2008 Commodity Futures Trading Commission (CFTC) Report titled "Large Short Trader Activity in the Silver Futures Market," show that JPMorgan "intentionally maintain[ed] a high short concentration in COMEX silver futures" in order to depress COMEX silver prices. (Pls. Mem. at 3 (citing Am. Compl. ¶ 137(i)-(r)); see also Am. Compl. ¶ 137(t)-(u).)

Critically, none of these new allegations, (see Pls. Mem. at 2-4), cure the deficiencies that the Court's Opinion identified in Plaintiffs' First Complaint, (see Op. at 20). Rather these statistics speak to whether it is plausible that JPMorgan had the ability to influence prices in the COMEX silver futures market-a factual allegation which JPMorgan has not disputed. (See Op. at 19.) As this Court noted in its Opinion, "[m]ere knowledge that certain actions might have an impact on the futures market is not sufficient to state a private claim under the Commodity Exchange Act." (Op. at 20 (quoting In re Rough Rice Commodity Litig., 2012 WL 473091, at *7 (N.D. Ill. Feb. 9, 2012)).) Here, none of Plaintiffs' new allegations set forth facts showing plausibly that JPMorgan specifically took, or failed to take, an action intended to cause artificial prices to exist in the COMEX silver futures market. Cf. CFTC v. Parnon Energy, Inc., 875 F. Supp. 2d 233, 249 (S.D.N.Y. 2012) ("To meet the specific intent element of a claim for manipulation . . . of a futures ...

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