41 F.4th 71
2d Cir.2022Background
- Plaintiffs (collectively "Gamma") sued under the Commodity Exchange Act (CEA), alleging that Merrill, Bank of America, Morgan Stanley, and two individual traders spoofed futures and options markets for gold, silver, platinum, and palladium from 2007–2014.
- Defendants previously admitted spoofing in government prosecutions and regulatory settlements; government records identified thousands of spoofing instances and roughly 30 specific spoofing dates.
- Gamma alleged class claims and sought damages, relying on (a) the parties’ high trading volumes (thousands of trades each) and (b) nine specific dates on which Gamma traded in the same market and opposite direction as defendants’ spoofing.
- The district court dismissed Gamma’s amended complaint under Rule 12(b)(6), holding the claims were time-barred and, alternatively, that Gamma failed to plausibly plead it suffered CEA “actual damages.”
- On appeal the Second Circuit affirmed solely on the alternative ground that Gamma did not adequately plead that defendants’ spoofing actually harmed Gamma; the court did not decide timeliness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of CEA damages pleading | Gamma: high-frequency trading and thousands of spoof events make it plausible at least one trade was harmed; plus nine same-day opposite-position instances support an inference of injury | Defs: probabilistic allegations and same-day coincidence without timing/details are speculative and insufficient to show plaintiff-specific harm | Gamma did not plausibly plead "actual damages"; allegations too speculative and conclusory to infer harm |
| Use of limited same-day matches (nine dates) to infer injury | Gamma: nine identified dates where Gamma traded opposite defendants supports inference that some trades were affected | Defs: Gamma pleads no timing (pre- vs. post-spoof) or duration of spoof effects, so same-day trading does not show price artificiality at Gamma’s trade times | Same-day allegations without temporal detail or factual allegations about spoof-duration do not establish CEA injury |
| Reliance on statistical/probability pleading | Gamma: sheer volume makes it implausible no trade was affected; permissibly pleads at least one harmed trade | Defs: allowing such pleading would let any frequent trader sue without showing actual loss; CEA requires plaintiff-specific harm | Court rejected probabilistic pleading as insufficient under CEA/Total Gas standard |
| Request for leave to amend (raised on appeal) | Gamma: should be allowed to amend if dismissal for damages; district court’s timeliness ruling made amendment futile earlier | Defs: Gamma never sought leave below; appellate request is forfeited | Request for leave to amend was forfeited; raising it first on appeal is procedurally improper |
Key Cases Cited
- Harry v. Total Gas & Power N. Am., Inc., 889 F.3d 104 (2d Cir. 2018) (CEA plaintiffs must plead plaintiff-specific harm; privity or equivalent facts usually required)
- Summers v. Earth Island Inst., 555 U.S. 488 (2009) (probabilistic allegations of injury-in-fact may be insufficient for standing)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (conclusory allegations are not entitled to the presumption of truth)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (pleading assessed on all alleged facts collectively)
- Irrera v. Humpherys, 859 F.3d 196 (2d Cir. 2017) (courts may apply experience and common sense to distinguish plausible from speculative allegations)
- Kleinman v. Elan Corp., plc, 706 F.3d 145 (2d Cir. 2013) (party may not amend pleadings through appellate brief)
- Kaplan v. Lebanese Canadian Bank, SAL, 999 F.3d 842 (2d Cir. 2021) (pleading and inference analysis considers all allegations together)
- Horoshko v. Citibank, N.A., 373 F.3d 248 (2d Cir. 2004) (party forfeits right to seek leave to amend if not requested below)