We have been following the effects of the Second Circuit’s decision paring back antitrust “umbrella standing” in Schwab Short-Term Bond Mkt. Fund v. Lloyds Banking Grp. PLC, 22 F.4th 103 (2d Cir. 2021) (“Schwab II”), on the actions we have been following, including the LIBOR action (in which the decision was made), the SIBOR action, and the Aluminum Warehousing action. We also reported that the defendants in the In re London Silver Fixing, Ltd., Antitrust Litigation, 1:14-md-02573-VEC SDNY, had filed a second motion to dismiss based on Schwab II, and this post reviews the plaintiffs’ opposition to that motion.
As all the parties have done on these motions, the plaintiffs acknowledge that antitrust standing is decided by a four-factor test set forth by the Supreme Court and in several Second Circuit opinions including Schwab II, namely (1) the directness or indirectness of the asserted injury; (2) the existence of an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement; (3) the speculativeness of the alleged injury; and (4) the difficulty of identifying damages and apportioning them among direct and indirect victims so as to avoid duplicative recoveries. The plaintiffs also acknowledge the general understanding that “the first factor is the most important; the third and fourth factors are not an independent basis for denying standing where Plaintiffs have adequately alleged proximate cause.”
Direct vs. Indirect Injury
Identifying the first factor as the most important, the plaintiffs accuse the defendants of misrepresenting Schwab II on the grounds that, although the Second Circuit required directness of injury, it does not and cannot require privity of contract in every situation. The plaintiffs explain that a pure privity requirement would be completely out of place in this action because, unlike the Schwab II plaintiffs, they participated in an anonymous silver futures market rather than in face-to-face transactions:
In the context of futures traded on a commodity exchange, it is simply impossible to distinguish between plaintiffs who transacted directly with defendants and plaintiffs who did not. That is because the exchange acts as an intermediary that renders the real counterparty anonymous. E.g. Leist v. Simplot, 638 F.2d 283, 287 (2d Cir. 1980), aff’d sub nom., Merrill Lynch, Pierce, Fenner & Smith, Inc. v. J.J. Curran, 456 U.S. 353 (1982) (“The clearinghouse, a key link in the futures trading system, operates as the seller to all buyers and the buyer from all sellers, thus facilitating the interchangeability of the contracts and the cancelling of positions.”). Under Defendants’ interpretation, then, there can be no possible efficient enforcer when antitrust conspirators manipulate financial instruments that are traded on the exchanges to their benefit, because no injured futures trader will ever have a contractual privity relationship with a defendant. Put another way, they argue that parties like Defendants would be essentially immune from private antitrust enforcement when they engage in price fixing in the silver futures market (or any other exchange-based futures market), no matter how brazenly unlawful their conduct might be in this instance or in the future.
The plaintiffs line themselves up with two Seventh Circuit cases Schwab II distinguished, Sanner v. Bd. of Trade of Chi., 62 F.3d 918 (7th Cir. 1995), and Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469 (7th Cir. 2002), which “allowed claims by those injured in the futures market after defendants manipulated the underlying commodity,” on the grounds that Sanner and Loeb “involved futures markets and not mere benchmark manipulation.” The plaintiffs dismiss the defendants’ efforts to limit the distinction to cases where a “cartel controls an ‘overwhelmingly large’ share of that exchange market,” and summarize their understanding of current law as follows:
Accordingly, Schwab II acknowledges the antitrust standing of ‘plaintiffs who bought or sold various physical commodities in the cash market,’ ‘who alleged injuries caused by the defendants’ manipulation in the futures market for the same commodity.’ 22 F.4th at 118 (citing Sanner, 62 F.3d at 930; Loeb, 306 F.3d at 489). That is because of ‘the ‘lockstep’ link between prices in the two markets and the uniquely interrelated nature of a cash market for a specific commodity and the futures market for that same commodity.’ Id. Indeed, in those Seventh Circuit cases, as here, the defendants ‘intended to impact both the cash and futures markets to [manipulate] prices in both.’ Id.
The plaintiffs also hint at a broader strategy when they remind the court that one decision that the defendants’ motion relies on, In re Platinum & Palladium Antitrust Litig., No. 1:14-CV-9391 (GHW), 2017 WL 1169626 (S.D.N.Y. Mar. 28, 2017), is fully-briefed and awaiting a ruling on appeal, so that “the Second Circuit will soon clarify exactly what we should make of the district court’s decision in Platinum & Palladium.”
Finally, the plaintiffs argue that effectively prohibiting anti-trust enforcement of conduct in the commodities markets would restrict future plaintiffs to remedies under the Commodities Exchange Act, which would be contrary to a 40-year history of dual regulation, as well as to Congress’s desire to continue “application of the antitrust laws to those anti-competitive practices that also violate the Commodity Exchange Act.”
Moving on to their physical-trading claims, the plaintiffs rely on another case distinguished by Schwab II, Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), which permitted antitrust claims to proceed despite the lack of a direct transaction if the injury suffered was “inextricably intertwined with defendants’ scheme,” and argue that the present case—unlike Schwab II—also has a “direct relationship between the pocket-book harm to the plaintiff and the market advantage gained by the defendants, which was the very goal of the conspiracy,” here to “control the global price for silver to benefit their own transactions.”
On damages, the plaintiffs rely on their allegations that the Silver Fix price did affect both silver futures and physical silver prices, which they note the District Court had already accepted as sufficient when it denied the defendants’ previous motion to dismiss, and noted that “the Second Circuit has repeatedly been forced in recent years to reproach courts in this District in benchmark manipulation cases (including Schwab II itself) for overstepping the limits of the pleading stage.”
The Other Efficient Enforcer Factors
The plaintiffs spend little time on the other three efficient enforcer factors. They say that the second factor is irrelevant, because there are no parties in the futures market who know they traded directly with the defendants, and that the absence of parties who traded physical silver with the defendants should be given little or no weight because the existing plaintiffs have prosecuted the actions diligently for eight years. And the third and fourth factors concerning speculativeness and difficulty in calculating damages are only entitled to the “slightest weight,” and can be decided on a far more complete record anyway once the class certification motion is submitted.
Based on their briefing, it seems that the plaintiffs’ strategy is to survive the current motion by reminding the court that the Second Circuit may well clarify Schwab II when it decides the In re Platinum & Palladium appeal, and that the court will be able to address many of the same issues on a fuller record in the plaintiffs’ previously-filed but now stayed motion for class certification. Once the defendants reply, another update will be provided.