Antitrust Law Daily Claims of conspiracy to manipulate price of North Sea Brent crude properly dismissed
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Thursday, August 29, 2019

Claims of conspiracy to manipulate price of North Sea Brent crude properly dismissed

By Peter Reap, J.D., LL.M.

The plaintiffs failed to plead antitrust injury in the markets that the defendants allegedly directly restrained. Further, Norway’s Statoil was shielded under the Foreign Sovereign Immunities Act.

Antitrust claims brought by traders of futures and derivatives contracts pegged to North Sea oil—also known as Brent crude— against producers, refiners, and sellers of Brent crude oil for manipulating the price of physical Brent crude traded in the North Sea were properly dismissed, the U.S. Court of Appeals in New York City has decided. The plaintiffs failed to allege antitrust injury, because they did not demonstrate that they participated in the relevant market of derivative instruments directly pegged to the Dated Brent Assessment—a benchmark used for the pricing of Brent crude oil. The federal district court in New York City’s holdings that it lacked subject-matter jurisdiction over the plaintiffs’ claims against Norway’s Statoil and lacked personal jurisdiction over Shell International Trading and Shipping Company Limited (STASCO) also were affirmed (Prime International Trading, Ltd. v. BP PLC, August 28, 2019, per curiam).

Antitrust injury. Typically, only participants in the defendants’ market can show antitrust injury, but there is a narrow exception for parties whose injuries are inextricably intertwined with the injuries of market participants, the court noted. Here, there were two relevant markets. First, the defendants, as producers, refiners, and sellers of Brent crude oil, allegedly manipulated the price of physical Brent crude traded in the North Sea so as to increase the profit margins in their oil businesses. Accordingly, a relevant market for the purposes of this case had to be, at a minimum, the physical Brent crude market. Secondly, the plaintiffs also claimed that the defendants manipulated the price of Brent crude in order to affect the Dated Brent Assessment, which would in turn boost the defendants’ profit on derivatives that were linked to, or otherwise tracked, that assessment. As such, a second relevant market was the market for any derivative instrument that directly incorporated Dated Brent as benchmark or pricing element.

The plaintiffs did not argue that they participated in the physical market for Brent crude oil. Thus, in order to show antitrust standing they had to have participated in the market for derivative instruments directly pegged to the Dated Brent Assessment. The plaintiffs failed to make this showing, the court held.

The plaintiffs acknowledged that the operative pricing benchmark for Brent futures and derivative products is the ICE Brent Index, not the Dated Brent Assessment. They further conceded that the Dated Brent Assessment is not "express[ly] incorporat[ed]" into the ICE Brent Index. Instead, the plaintiffs rested their theory of incorporation on the fact that the Dated Brent Assessment "closely correlates" with the ICE Brent Index. But the plaintiffs could not have suffered an antitrust injury if they dealt in products that were not linked to the benchmark they complain of, for they would not be a participant in the very market that is directly restrained, the court explained. Although the plaintiffs stated in their complaint, for example, that a "critical component of the Brent Index is the Platts price," there was no allegation that the "Platts price" and "Dated Brent Assessment" were synonymous. Moreover, as to the few products that the plaintiffs said directly incorporate the Dated Brent Assessment, such as the NYMEX Brent CFD, the plaintiffs made no specific allegations that they bought or sold these particular contracts. Thus, they did not adequately plead an antitrust injury in the markets that defendants allegedly directly restrained.

Foreign Sovereign Immunities Act. The district court lacked subject matter jurisdiction over the plaintiffs’ claims against Statoil, an oil and gas company primarily owned by the Kingdom of Norway, the Second Circuit ruled. The plaintiffs failed to demonstrate that Statoil was subject to the commercial activity exception under the Foreign Sovereign Immunities Act (FSIA).

The relevant commercial activity for purposes of evaluating this FSIA exception was the allegedly manipulative transactions and reporting that allegedly gave rise to manipulation on NYMEX and ICE. The lower court properly found that Statoil’s activities overseas did not satisfy the FSIA’s commercial activity exception. To qualify as a direct effect in the United States, the effect must follow as an immediate consequence of the defendant’s activity. There was plainly no direct effect here as the "ripple effects" that the plaintiffs complained of occurred at the end of a long chain of causation, the court held.

Personal jurisdiction. The allegations against STASCO were limited to their "manipulative physical trades in Brent crude oil" in Europe. The plaintiffs made no allegations that STASCO manipulated markets in the United States or conducted any physical Brent trades in the United States. Although the plaintiffs suggested that STASCO "aimed" the effects of its European trading activities at the United States, they failed to allege anything more than STASCO’s mere knowledge that United States citizens might be wronged, which was plainly insufficient to confer specific, personal jurisdiction.

Commodity Exchange Act claims. In a separate decision also released today, the Second Circuit panel affirmed dismissal of related claims under the Commodity Exchange Act (CEA) as the application of the CEA to the facts alleged exceeded the territorial limitations of the statute. A statute is presumed not to have an extraterritorial reach unless Congress intended for it to do so, the panel stated, and the provisions at issue do not contain any language suggesting this intention. Further, the panel noted that the relevant conduct occurred in other countries and found that the plaintiffs failed to plead a proper domestic application of the CEA (Prime International Trading, Ltd. v. BP PLC, August 29, 2019, Sullivan, R.).

The case is No. 17-2233.

Attorneys: David E. Kovel and Andrew M. McNeela (Kirby McInerney LLP) for Prime International Trading, Ltd. Richard C. Pepperman, Daryl Libow, Amanda Flug Davidoff, and Austin L. Raynor (Sullivan & Cromwell LLP) for BP PLC. William Anthony Burck (Quinn Emanuel Urquhart & Sullivan, LLP) for Trafigura Beheer BV and Trafigura AG. Perry A. Lange and David S. Lesser (Wilmer Cutler Pickering Hale and Dorr LLP) for Statoil ASA. David B. Salmons, Steven A. Reed, R. Brenda Fee, and Michael E. Kenneally (Morgan, Lewis & Bockius LLP) Shell International Trading and Shipping Co. Ltd.

Companies: Prime International Trading, Ltd; BP PLC; Trafigura Beheer BV; Trafigura AG; Shell International Trading and Shipping Co. Ltd.

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