In re Term Commodities Cotton Futures Litigation

Citation: 371 F. Supp. 3d 95Docket: 12-CV-5126 (ALC); 12-CV-5269 (ALC); 12-CV-5334 (ALC); 12-CV-5380 (ALC); 12-CV-5563 (ALC); 12-CV-5732 (ALC)

Court: District Court, S.D. Illinois; March 22, 2019; Federal District Court

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Plaintiffs Mark Allen and Brian Ledwith, representing a proposed class, have initiated consolidated actions against Defendants Louis Dreyfus Commodities B.V. and associated entities, alleging violations of the Commodities Exchange Act and the Sherman Act. They claim that Defendants manipulated Cotton No. 2 futures contract prices through unreasonable delivery demands, resulting in financial losses during May and July 2011.

The procedural history includes the filing of a Consolidated Amended Complaint on September 12, 2012, followed by a Second Consolidated Amended Complaint on June 10, 2013. Defendants moved to dismiss this complaint on July 8, 2013, and the Court partially granted the motion on December 20, 2013. A motion for reconsideration led to further dismissal of claims under § 1 of the Sherman Act in January 2014. 

In 2016, Plaintiff Stuart Satullo withdrew from the case, and his motion was granted. The remaining Plaintiff, Mark Allen, sought to amend the complaint in March 2017, which was approved in February 2018, leading to the filing of a Third Amended Complaint on March 16, 2018. Defendants subsequently sought permission to file a motion for judgment on the pleadings regarding claims related to the July 2011 contract, which the Court granted. Following the submission of briefs by both parties, the Court denied Defendants' Motion for Partial Judgment on the Pleadings.

The SCAC, filed on June 10, 2013, alleges that Defendants fraudulently manipulated Cotton Futures prices related to May and July 2011 Contracts, leading to a historic cotton market squeeze. The relevant trading periods for the May and July Contracts were identified as March 30 to May 6, 2011, and June 7 to July 7, 2011, respectively. Plaintiffs Allen and Satullo initiated the action, with Satullo being the only one to personally transact in the July Contracts during the relevant timeframe. Defendants moved to dismiss the SCAC on December 20, 2013, but the Court partially denied this motion, affirming that the alleged facts were sufficient for a CEA manipulation claim. Following extensive discovery, Satullo withdrew from the case on October 30, 2016, and was replaced by Brian Ledwith, who was added as a named plaintiff on February 28, 2018. The Court found that Ledwith adequately alleged ongoing manipulation and actual damages, thus establishing standing under the CEA. In the current motion, Defendants seek to dismiss claims regarding the July 2011 Contract, contending that Ledwith does not meet the CEA pleading standards, thereby questioning the validity of the class representation for that contract. 

For Rule 12(c) motions, courts apply the same standard as for Rule 12(b)(6) motions, requiring acceptance of complaint allegations as true and drawing reasonable inferences in favor of the non-movant. Legal conclusions are not subject to this standard. To survive a Rule 12(c) motion, a complaint must provide sufficient factual content to infer defendant liability for the alleged misconduct, presenting a plausible claim for relief. The court's consideration includes the complaint, answer, relevant documents, and any judicially noticeable facts.

Section 22 of the Commodity Exchange Act (CEA) allows private plaintiffs to seek damages for violations related to futures trading. Specifically, 7 U.S.C. § 25(a)(1) holds individuals liable for actual damages if they violate the CEA or assist in such violations. Courts in the Second Circuit require plaintiffs to demonstrate actual injury caused by the violation, akin to the injury-in-fact analysis used for constitutional standing. To establish actual injury from market manipulations, a plaintiff must meet two criteria: (1) plausibly allege that they engaged in a commodity transaction at skewed prices due to the defendant’s manipulations; and (2) plausibly allege that these manipulated prices resulted in a loss. General statements about trading activities are acceptable, and claims of trading losses during alleged manipulation are likely sufficient.

In the case of Plaintiff Ledwith, he claims that Defendants unlawfully manipulated Cotton Futures contracts, alleging he purchased fifty-seven July 2011 Contracts and suffered losses of approximately $289,520 due to this manipulation. These specific allegations satisfy both prongs of the CEA pleading standard, indicating that Ledwith has sufficiently asserted violations of the CEA in his complaint.

Defendants' Motion for Partial Judgment on the Pleadings has been denied. The Motion to Dismiss was granted for Plaintiffs' claims of unjust enrichment but denied for other claims. Upon reconsideration, Plaintiffs' antitrust claim under § 1 of the Sherman Act was also dismissed. Remaining claims include illegal manipulation under the Commodity Exchange Act (CEA), aiding and abetting under the CEA, and monopolization under § 2 of the Sherman Act. The Court applied a four-factor test to assess price manipulation, considering the defendant's ability to influence prices, intent to do so, existence of artificial prices, and causation of those prices. The Court concluded that the Plaintiffs' allegations, when accepted as true, support a CEA manipulation claim. Relevant provisions of the CEA outline various parties involved in commodity trading who may be affected by manipulative practices. The injury analysis standard differs in that it requires plausible rather than merely colorable injury, as confirmed by the Second Circuit in Total Gas, which upheld the interpretation of the statute established in previous cases.