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From Antitrust Law Daily, October 1, 2014

Conspiracy claim tossed in cotton futures manipulative pricing litigation

By Greg Hammond, J.D.

Defendants in a putative class action over alleged price fixing and manipulation of cotton futures contracts successfully dodged claims that they conspired with each other in violation of Section 1 of the Sherman Act. In reconsidering its December 20, 2013 decision to deny the defendants’ motion to dismiss, the federal district court dismissed the Section 1 Sherman Act claim, but maintained its decision to uphold the Section 2 claim (In re: Term Commodities Cotton Futures Litigation, September 30, 2014, Carter, A.).

The plaintiffs in this case alleged that various companies and individuals violated Sections 1 and 2 of the Sherman Act by artificially fixing and inflating prices of Intercontinental Exchange Cotton No. 2 futures contracts expiring in May 2011 and July 2011. The court previously declined to dismiss the Sherman Act claims, and the defendants moved for reconsideration, arguing that: (1) the plaintiffs’ allegations did not state a claim under Section 1 of the Sherman Act because the defendants are incapable of conspiring with themselves as matter of law, and (2) the plaintiffs’ allegations make clear that the only basis for antitrust injury is predatory overbidding under Section 2 of the Sherman Act, which is subject to the pleading requirements of Weyerhaeuser v. Ross-Simmons Hardwood Lumber Co., Inc. (2007-1 Trade Cases ¶75,601).

Section 1 claim. In support of their motion for reconsideration, the defendants first argued the court erred in not evaluating the plaintiff’s allegations underCopperweld Corp. v. Independence Tube Corp. (1984-2 Trade Cases ¶66,065). The court rejected the argument that Copperweld unequivocally holds that Section 1 claims are not viable where the only named coconspirators are a parent corporation and its subsidiaries. Nevertheless, the court reexamined the second amended consolidated complaint (SCAC) to determine whether the defendants were legally capable of conspiring or combining in light of the reasoning in Copperweld. It noted that the plaintiffs did not clearly plead the corporate relationships between the defendants. However, from the facts in the SCAC, the court determined that it could not conclude that the allegations support a reasonable inference that the defendants have “separate corporate consciousnesses.” The defendants “simply cannot be reasonably perceived as ‘separate economic actors pursuing separate economic interests, so agreements among them do not suddenly bring together economic power that was previously pursuing divergent goals,’” the court stated.

Allegations that the corporate defendants conspired with one of their chief executive officers was also problematic, as a corporation’s employees cannot conspire with their employer under Section 1 of the Sherman Act. Consequently, the plaintiff’s Section 1 Sherman Act claim was dismissed.

Section 2 claim. To support their argument that the court erred in failing to apply the pleading requirements set forth in Weyerhaeuser, the defendants argued that the plaintiff’s allegations fit neatly into a predatory bidding analysis. However, the court disagreed, noting that the allegations in this case describe an “extensive, manipulative trading strategy, whereby Defendants would have to overpay for cotton futures, add to their long positions to continue to drive up prices, refuse cotton from the cash market, and stand for delivery.” Further, unlike Weyerhaeuser, the defendants were not hoping to drive the plaintiffs out of the market, but actually wanted the plaintiffs to continue participating in the market and to bid-up the prices to offset the defendants’ short positions. The predatory bidding framework outlined in Weyerhaeuser was also inapplicable in this case, as it was “painfully unclear how the court could determine whether Defendants’ bidding for cotton, or perhaps cotton futures, caused the cost of the relevant output, which is non-existent, to rise above revenues generated in the sale of those outputs.” Consequently, the court upheld the Section 2 Sherman Act claim.

The case number is 12 Civ. 5126 (ALC)(KNF).

Attorneys: Bernard Persky (Robins, Kaplan, Miller & Ciresi, LLP) for Brian Ledwith. Bruce Edward Clark (Sullivan and Cromwell, LLP) for Term Commodities, Inc., Allenberg Cotton Co., Joseph Nicosia, Louis Dreyfus Commodities BV and Louis Dreyfus Commodities LLC.

Companies: Term Commodities, Inc.; Allenberg Cotton Co.; Louis Dreyfus Commodities BV; Louis Dreyfus Commodities LLC

MainStory: TopStory Antitrust NewYorkNews

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