United States District Court, S.D. New York
In re NORTH SEA BRENT CRUDE OIL FUTURES LITIGATION This document applies to ALL CASES
OPINION AND ORDER ON MOTIONS TO DISMISS
L. CARTER, JR., United States District Judge.
putative class of futures and derivatives traders
("Trader Plaintiffs") and a putative class of the
owners of landholding and lease-holding interests in United
States oil-producing property ("Landowner Plaintiff,
" together with Trader Plaintiffs,
"Plaintiffs") have asserted claims against a number
of Brent crude oil producers, traders, and their selected
affiliates. Plaintiffs allege that Defendants conspired to
intentionally manipulate Brent crude oil prices and the
prices of Brent crude oil futures and derivatives contracts
traded on the New York Mercantile Exchange
("NYMEX") and the Intercontinental Exchange
("ICE Futures Europe") in violation of the
Commodity Exchange Act, the Sherman Act, and the laws of
various states. Defendants have moved to dismiss both
Complaints on a number of theories. For the reasons, and to
the extent set forth below, Defendants' motions are
granted and the Complaints are dismissed.
following facts are taken from the allegations in
Plaintiffs' Second Amended Complaints, which are presumed
to be true for purposes of this motion to dismiss.
allege that the Defendants, who are producers, refiners, and
traders of Brent crude oil, or entities affiliated with these
producers, refiners, and traders, "monopolized the Brent
Crude Oil market and entered into unlawful combinations,
agreements, and conspiracies to fix f and restrain trade in,
and intentionally manipulate Brent Crude Oil prices and the
prices of Brent Crude Oil futures and derivatives
contracts." ECF No. 308 (Traders' Second Amended
Complaint ("Trader SAC")), at ¶ 2; see
also Landowner ECF No. 96 (Landowner's Second
Amended Complaint ("Landowner SAC")), at ¶
Trader Plaintiffs are United States individuals and entities
who trade Brent futures and derivatives contracts on NYMEX
and ICE Futures Europe. Trader SAC ¶¶ 24-34. The
Landowner Plaintiff is a Louisiana resident who is a
"landowner and/or leaseholder" of oil-producing
lands, as well as the owner of multiple royalty and working
interests in oil leases in the State of Louisiana. Landowner
SAC ¶ 10.
Brent Crude Oil
crude oil is a variety of light, sweet crude oil pulled from
the North Sea region of Europe. Trader SAC ¶ 4;
Landowner SAC ¶ 30. Although Brent is one of the four
fields from which crude oil is pulled in the North Sea (the
others are Forties, Oseberg, and Ekoflsk), reference to
"Brent crude oil" encompasses oil from all four
fields. Trader SAC ¶¶ 55, 76; Landowner SAC ¶
30. Brent crude oil serves as a benchmark for two-thirds of
the world's internationally-traded crude oil supplies.
Trader SAC ¶ 4; Landowner SAC ¶ 30.
Brent crude oil benchmarking function is facilitated by a
number of price reporting agencies, including Platts, a
London-based division of the New York-based McGraw Hill
Financial. Trader SAC ¶ 4; Landowner SAC ¶ 64. The
Brent crude oil physical market consists primarily of private
("over-the-counter") trades in cargoes of crude oil
in the North Sea. Trader SAC ¶ 85; Landowner SAC ¶
67. Because the trades are based on over-the-counter
contracts, oil prices are not directly visible to the public;
instead, Platts and other price-reporting agencies collect
information on transactions from market participants and
report them. Id.
reports prices for a variety of submarkets in the Brent crude
oil market, but the "primary benchmark" for Brent
crude oil is "Dated Brent, " physical cargoes of
crude oil in the North Sea that have been assigned specific
delivery dates. Trader SAC ¶¶ 88-89; Landowner SAC
¶¶ 69-70. To assess pricing for Dated Brent, Platts
uses the so-called Market-On-Close ("MOC")
methodology. Trader SAC ¶ 92; Landowner SAC ¶ 74.
This methodology limits the analysis of market-pricing data
to transactions that occur during a half-hour window at the
end of the trading day (4:00 p.m. to 4:30 p.m. London time).
Id. Platts collects information regarding trades in,
and bids and offers for, contracts for crude oil from the
Brent, Forties, Oseberg, and Ekofisk ("BFOE")
fields during this period, known as the MOC window. Trader
SAC ¶¶ 95-96; Landowner SAC ¶¶ 77-78. It
then "carefully analyses transactional data to determine
its fitness for an assessment of market value . . .
appl[ying] judgment to the data it gathers" before
publishing it. Trader SAC ¶ 99; Landowner SAC ¶ 82.
In applying its independent judgment, Platts has, on
occasion, declined to consider transactions reported to it by
certain Defendants as not reflective of the market or
otherwise anomalous. See, e.g., Trader SAC
¶¶ 267, 285, 325-26.
Brent Crude Oil Futures and Derivatives
contend that Platts' and other price-reporting
agencies' pricing assessments "are directly
linked" to Brent crude oil futures and other derivative
contract prices. Trader SAC ¶ 127; Landowner SAC ¶
143. As a result, manipulation of Platts' Dated Brent
assessment "has effects that ripple throughout the Brent
Crude Oil and futures market." Trader SAC ¶ 126;
Landowner SAC ¶ 142.
focus specifically on futures and derivatives trading on
NYMEX and ICE Futures Europe. Trader SAC ¶ 2; Landowner
SAC ¶ 3. ICE Futures Europe is an electronic derivatives
exchange headquartered in London that also conducts business
out of offices in the United States. Trader SAC ¶ 141;
Landowner SAC ¶ 156. Trades on ICE Futures Europe are
placed through member entities and are cleared through ICE
Clear Europe, an entity wholly-owned by the same entity that
owns ICE Futures Europe. Trader SAC ¶¶ 150-63;
Landowner SAC ¶ 157. As the name implies, ICE Futures
Europe is not a CFTC-designated contract market, but, since
1999, U.S. traders have been permitted to trade there due to
a no-action letter the exchange received from the CFTC.
Trader SAC ¶¶ 143-44; Landowner SAC ¶¶
158-59. NYMEX is a U.S.-based physical commodity futures
exchange. Trader SAC ¶ 133; Landowner SAC ¶ 148.
variety of Brent crude oil futures and derivatives contracts
trade on NYMEX and ICE Futures Europe. Trader SAC
¶¶ 136, 175-223; Landowner SAC ¶ 151. The
Brent futures contracts on NYMEX settle to the price of ICE
Brent futures, which, in turn, have a settlement price based
on the ICE Brent Index. Trader SAC ¶ 123, 128, 179;
Landowner SAC ¶ 139, 144. ICE calculates its Brent Index
as an average of (1) the weighted average of the 25-day BFOE
market for cargoes due for delivery one month out (that is,
forward contracts); (2) the weighted average of the 25-day
BFOE market for cargoes due for delivery two months out plus
a straight average of the spread between the first and second
month cargo trades; and (3) an average of certain designated
published assessments. Trader SAC ¶¶ 128 n.3, 179.
While Platts maybe one of the sources for ICE Futures
Europe's published assessments, Platts' Dated Brent
assessment, a spot price, is not one of those considered.
Id. Nevertheless, Plaintiffs allege a correlation of
85% or more between Platts' Dated Brent assessment and
ICE Brent crude oil futures prices. Trader SAC ¶ 129;
Landowner SAC ¶ 146.
Dated Brent does not factor into the ICE Brent Index,
Platts' Dated Brent assessment is incorporated as a
pricing element for a limited number of derivatives contracts
traded on NYMEX and ICE Futures Europe. Trader SAC
¶¶ 136, 205-11. For instance, the Brent CFD
(contract for difference) traded on NYMEX is a short-term
swap agreement that represents the difference between Dated
Brent and a forward month BFOE cash contract. Id.
¶ 136. Similarly, ICE Futures Europe offers a variety of
dated-to-frontline contracts which capture the difference
between Dated Brent and short-term ICE futures contracts.
Id. ¶¶ 205-10.
U.S. Crude Oil
United States produces a variety of crude oils. Like Brent
crude oil, West Texas Intermediate ("WTI") and
Light Louisiana Sweet ("LLS") are light, sweet
crude oils. Trader SAC ¶ 79; Landowner SAC ¶¶
28-29, 33-39. WTI and Brent are the two major benchmarks for
the world's oil prices. Landowner SAC ¶ 29. The
crude oil produced and sold in the United States in which the
Landowner Plaintiff has an interest is priced to WTI.
Id. ¶ 62. Although WTI and LLS are crude oil
benchmarks distinct from Brent, the Landowner Plaintiff
alleges that there is a close correlation between the prices
of these three light, sweet crude oil varieties. Id.
¶¶ 40-41. With respect to WTI, specifically, the
Landowner Plaintiff contends that the correlation is, in
fact, causation, with Brent crude oil influencing the price
of WTI crude, not vice versa. Id. ¶ 41 -51. The
Landowner Plaintiff does not contemplate the possibility of
an independent factor affecting the price for both WTI and
Brent crude oil in the same manner.
allege that Defendants conspired to manipulate the Brent
crude oil market, including the market for Brent futures and
derivatives contracts, by engaging in manipulative conduct
and fraudulent physical trades and then deliberately and
systematically submitting information about those trades to
Platts during the MOC window. Trader SAC ¶ 224;
Landowner SAC ¶ 90. Plaintiffs do not allege that any of
the Defendants engaged in manipulative trading on NYMEX or
ICE Futures Europe; rather, they allege that the manipulation
of Platts' Dated Brent assessment, through manipulative
physical trades and reporting, "has effects that ripple
throughout the Brent Crude Oil and futures market, impacting
a wide variety of derivative and futures contracts on NYMEX
and ICE." Trader SAC ¶ 126; Landowner SAC ¶
describe in great detail a number of specific transactions
and transaction chains occurring between June 2010 and
September 2012 alleged to be manipulative. Trader SAC
¶¶ 251-419; Landowner SAC ¶¶ 96-136. For
purposes of these motions to dismiss, however, it suffices to
say that, generally speaking, Defendants allegedly
"selectively reported bids, offers, 'spoof orders
and transactions with aberrant pricing" and engaged in
"prohibited wash sale transactions" during the MOC
window. Trader SAC ¶ 8; Landowner SAC ¶ 92.
Plaintiffs explain that much of the conduct identified does
not make economic sense for the Defendants participating in
the transactions and can only be explained as part of a
conspiracy to drive the price of Brent crude oil in a
particular direction. See, e.g., Trader SAC
¶¶ 380-81, 397; Landowner SAC ¶¶ 130,
of example, both the Trader Plaintiffs and the Landowner
Plaintiff identify two transactions involving Phibro
Commodities in September 2012. Trader SAC ¶¶
395-97; Landowner SAC ¶¶ 129-30. On September 17,
2012, Phibro Commodities purchased a Forties cargo from BP at
a $0.05 premium, allegedly creating upward pressure on
Forties prices. Then, the following day, Phibro Commodities
offered for sale that same Forties cargo at a price $0.30 per
barrel lower. Id. Plaintiffs allege that Phibro
Commodities intended this artificially low offer, effectively
a spoof offer,  to signal to the market that the price was
heading lower, and that this offer was part of a scheme with
other Defendants, including Shell International Trading and
Shipping Company Limited, Trafigura, and Vitol, to move the
price of Dated Brent downward at the end of September. Trader
SAC ¶ 369; Landowner SAC ¶ 135.
the various cases in this litigation were centralized and
transferred to this Court in October 2013, ECF No. 1, the
Trader Plaintiffs filed an Amended Complaint on July 3, 2014.
ECF No. 166. The Landowner Plaintiff, proceeding in a related
case, filed an Amended Complaint on April 28, 2014. Landowner
ECF No. 40. Thereafter, all Defendants jointly filed
three motions to dismiss: (1) a motion to dismiss the Trader
Complaint (ECF Nos. 204 (Motion), 211, ("Defs.'
Trader Memo."), 212 (Declaration of Daryl A. Libow));
(2) a motion to dismiss the Landowner Complaint (ECF Nos. 218
(Motion), 219 ("Defs.' Landowner Memo.")); and
(3) a motion to dismiss both the Trader Complaint and the
Landowner Complaint on the grounds that they exceeded the
extraterritorial reach of United States law (ECF Nos. 200
(Motion), 201 ("Defs.' Extraterritoriality
Memo."), 202 (Declaration of Douglas F.
Curtis)). Defendants also individually filed
supplemental motions to dismiss advancing arguments specific
to them, which are not addressed in this opinion.
opposed the motions, although, with respect Defendants'
extraterritoriality arguments, the Landowner Plaintiff merely
incorporated by reference the Trader Plaintiffs'
arguments. ECF Nos. 243 ("Trader Extraterritoriality
Memo"), 252 ("Landowner Omnibus Memo."), 253
("Trader Memo."). Defendants submitted reply
briefs, and the Court considers the motions fully submitted.
ECF Nos. 285 ("Defs.' Landowner Reply"), 286
("Defs.' Extraterritoriality Reply"), 288
("Defs.' Trader Reply").
survive a motion to dismiss pursuant to Rule 12(b)(6),
"a complaint must contain sufficient factual matter,
accepted as true, to 'state a claim to relief that is
plausible on its face.'" Ashcroftv. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is facially
plausible "when the plaintiff pleads factual content
that allows the Court to draw the reasonable inference that
the defendant is liable for the misconduct alleged."
Id. (citing Twombly, 550 U.S. at 556). The
plaintiff must allege sufficient facts to show "more
than a sheer possibility that a defendant has acted
unlawfully, " and accordingly, where the plaintiff
alleges facts that are '"merely consistent with'
a defendant's liability, it 'stops short of the line
between possibility and plausibility of entitlement to
relief" Id. (quoting Twombly, 550 U.S.
considering a motion to dismiss, the court accepts as true
all factual allegations in the complaint and draws all
reasonable inferences in the plaintiffs favor. See
Goldstein v. Pataki,516 F.3d 50, 56 (2d Cir. 2008).
However, the court need not credit "[t]hreadbare
recitals of the elements of a cause of action, supported by
mere conclusory statements." Iqbal, 556 U.S. at
678 (citing Twombly, 550 U.S. at 555). Instead, the
complaint must provide factual allegations sufficient
"to give the defendant fair notice of what the claim is
and the grounds upon which it rests." Port Dock
& Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d
117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. at
555). The court "may consider the facts as asserted
within the four comers of the complaint together with the
documents attached to the complaint as exhibits, and ...