In this post, we discuss appeals and cross-appeals taken from two decisions rendered by United States District Judge Gregory Woods in In re: Platinum and Palladium Antitrust Litigation, 1:14-cv-09391 (S.D.N.Y.).
The Two Decisions Covered by the Appeal
The first of the decisions appealed from, dated March 28,2017 (“Platinum I”), was covered in this space on November 30, 2018, under the title “Fixing” with the Fix? – Part II – Are ‘Umbrella Purchasers’ ‘Efficient Enforcers?’”. In that decision, Judge Woods dismissed the antitrust claims of plaintiffs’ second amended complaint. He found that, although they had pleaded a price-fixing conspiracy and antitrust injury, plaintiffs had failed to plead allegations sufficient to establish that they were “efficient enforcers” of the antitrust laws. That decision also rejected defendants’ motion to dismiss, as impermissibly extraterritorial, plaintiffs’ claims under the Commodities Exchange Act (“CEA”), and dismissed foreign defendants BASF Metals Limited (“BASF Metals”), ICBC Standard Bank Plc (“ICBC”), and the London Platinum and Palladium Fixing Company Ltd. (“LPPFC”) for want of personal jurisdiction. It also dismissed the claims against BSAF Corporation (“BSAF Corp.”) for failure to state a claim.
The second of the decisions appealed from (“Platinum II”), dated March 29, 2020, resolved motions directed at plaintiffs’ third amended complaint, and for reconsideration of the holding in Platinum I regarding the extraterritoriality of the CEA claims. Platinum II again dismissed the antitrust claims based on a finding that plaintiffs were not “efficient enforcers”, granted reconsideration and dismissed the CEA claims as impermissibly extraterritorial, and upheld jurisdiction over foreign defendants BSAF Metals and ICBC based on the allegations of the third amended complaint. (Plaintiffs did not replead their claims against LPPFC or BSAF Corp.)
The appeal has yet to be fully submitted. This post considers the sole appellate filing to date — the opening brief of Plaintiffs-Appellants-Cross-Appellees KPFF Investment, Inc., White Oak Fund LP and Larry Hollin (“Appellants”). That brief (“Appellants’ Opening Brief”), filed August 6, 2020, addresses both of the decisions from which appeal was taken.
Appellants’ Arguments
Appellants’ Opening Brief principally concerns their objections to Judge Woods’ dismissal of their antitrust and CEA claims. It also argues that Judge Woods erred in holding that the second amended complaint failed to plead facts sufficient to support personal jurisdiction over LPPFC, or to state a claim against BSAF Corp.
The decision to uphold jurisdiction over BSAF Metals and ICBC is a subject for cross-appeal, and beyond the scope of Appellants’ Opening Brief.
Efficient Enforcers
Appellants urged that Judge Woods erred in Platinum II in holding that the third amended complaint failed to allege facts sufficient to support their status as “efficient enforcers” of the antitrust laws.
The “efficient enforcer” requirement for antitrust plaintiffs derives from Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983). As developed in the Second Circuit, assessment of whether a plaintiff is an “efficient enforcer” considers “(1) the directness or indirectness of the asserted injury . . . ; (2) the existence of more direct victims of the alleged conspiracy; (3) the extent to which [plaintiffs’] damages claim is highly speculative; and (4) the importance of avoiding either the risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other.” Gelboim v. Bank of Am. Corp., 823 F.3d 759, 778 (2d Cir. 2016) (internal citations omitted).
Gelboim had found antitrust injury sufficiently pleaded by certain plaintiffs who had who purchased financial instruments linked to the London Interbank Offered Rate (“LIBOR”). However, it remanded for consideration of whether those plaintiffs were efficient enforcers under Associated General Contractors of California, Inc. In doing so, the Second Circuit had suggested that, if defendants “control[led] only a small percentage of the ultimate identified market,” damages might be “disproportionate to [their] wrongdoing,” potentially “bankrupt[ing] 16 of the world’s most important financial institutions,” while also “vastly extend[ing] the potential scope of antitrust liability in myriad markets where derivative instruments have proliferated.” 823 F.3d at 779.
Appellants argued that Judge Woods misapplied this language from Gelboim to require that they show that Defendants dominated the relevant platinum and palladium market. They argued that Gelboim had itself acknowledged that the LIBOR case was “like no other” because it involved “nothing less than the market for money.” Gelboim, 823 F.3d at 778, 782, and that Judge Woods therefore erred in applying its disproportionality principle to require domination in a standard price-fixing and commodity manipulation case.
Appellants further argued that: (1) that they were efficient enforcers because they had traded directly with the commodity exchanges that traded the relevant products; (2) proof of market power, and thus proportionality, is not required for a horizontal conspiracy such as they had pleaded (quoting NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 109-10 (1984); and (3) given the deferential reading required on a motion under Rule 12(b)(6) and their allegations regarding defendants’ substantial collective market share, and his own acknowledgment that defendants held substantial market share in Physical and NYMEX platinum and palladium, Judge Woods should have found domination sufficiently pleaded in the event it were required.
Extraterritoriality of the CEA Claims
Appellants next argued that Judge Woods erred in Platinum II by interpreting an intervening Second Circuit decision, Prime International Trading, Ltd. v. BP PLC, 937 F.3d 94 (2d Cir. 2019), to justify reconsideration and dismissal, as impermissibly extraterritorial, of the CEA claims that he had sustained in Platinum I.
Prime International Trading held that “[p]laintiffs must allege not only a domestic transaction, but also domestic—not extraterritorial—conduct by Defendants” that violates the CEA. 937 F.3d at 105 (emphasis in original). Appellants argued that Woods erred in finding their allegations of defendants’ domestic conduct, such as manipulative trading on the NYMEX and constant communications between U.S. traders and Fixing participants in furtherance of the conspiracy, insufficient to meet this requirement. This was especially so, they argued, as the third amended complaint alleged a near one-to one link between the benchmark prices for physical platinum and palladium set by defendants’ fixing and the NYMEX platinum and palladium prices, which contrasted with the more attenuated affect on prices in Prime International Trading.
Personal Jurisdiction over LPPFC
Appellants challenged Judge Woods’ holding in Platinum I that the second amended complaint failed to allege personal jurisdiction over LPPFC.
Plaintiffs alleged that LPPFC was an alter ego of defendants, and that (1) defendants selected LPPFC’s board members, (2) defendants conducted LPPFC’s day-to-day operations through its directors, whom they employed, (3) LPPFC was financially dependent on defendants, and (4) LPPFC had no function other than to implement the price-fixing scheme alleged.
Citing S. New England Tel. Co. v. Global NAPs Inc., 624 F.3d 123, 138-139 (2d Cir. 2010) and D Klein & Son, Inc. v. Good Decision, Inc., 147 F. App’x 195, 196 (2d Cir. 2005), Appellants argued that they need show only that defendants dominated LPPFC and that exercising jurisdiction over LPPFC comports with due process in order satisfy alter ego jurisdiction, and that the pleading standard on this point was relaxed on a motion to dismiss, and satisfied by the allegations above.
They further cited numerous authorities from courts of the European Union — Cooper Tire & Rubber Company Europe Ltd & Ors v. Dow Deutschland Inc & Ors, [2010] EWCA Civ 864 ¶¶ 42-46; Media-Saturn Holding GmbH v. Toshiba Information Sys. (UK) Ltd, [2019] EWHC 1095 (Ch) ¶152 Roche Prods. Ltd. v. Provimi Ltd., [2003] EWHC 961 ¶31 (Comm) – to argue that there is no material difference on this point under E.U. law (which defendants had argued the district court should apply).
Appellants contended that Woods erred in relying on their failure to make allegations regarding LPPFC’s observance of corporate formalities, whether LPPFC’s funds were intermingled with those of defendants, and whether the defendants shared any office space or addresses with the LPPFC. Appellants argued that such factors are not determinative of alter ego status and, to the extent the Woods believed them relevant, should have been developed through jurisdictional discovery, which he declined to allow.
Failure to State a Claim Against BSAF Corp.
Finally, Appellants disputed Judge Woods’ holding in Platinum I that that the second amended complaint failed to state a claim against BSAF Corp.
Judge Woods relied on Appellants’ failure to allege BASF Corp.’s direct or indirect involvement in the alleged price manipulation, BASF Corp.’s role in executing the scheme, or BASF Corp’s motive to artificially suppress platinum and palladium prices.
Appellants argued that the court failed to give due consideration to their allegations that BASF Corp. had a common motive with the other defendants, including its affiliate BASF Metals. They had alleged that the BASF corporate family is a global leader in producing automotive catalytic converters, which use platinum and palladium as an input. They argued that Judge Woods erred in failing to read these allegations, on a motion to dismiss, as sufficient to show that BASF Corp. had a common interest to suppress platinum and palladium prices, and to draw the reasonable inference that it participated in the scheme to accomplish that end through its affiliate.
This post was written by Thomas A. Kissane.