OPINION & ORDER
These cases involve allegations of market manipulation in a commodities deriva
I. Background
A. Parties
The complaints in these three cases, brought by a common counsel, make parallel allegations against common defendants. The complaints differ only in certain descriptive and mostly irrelevant details, like the precise timing of each plaintiffs trades and hence his (or its) alleged injuries. The Court accordingly consolidated the briefing for the purpose of resolving the instant motions to dismiss.
One action, 15 Civ. 992, originated with a complaint filed in state court on January 22, 2015 by plaintiffs Daniel Shak, SHK Asset Management, and SHK Diversified, LLC.
A second action, 15 Civ. 994, originated with a state court complaint filed on February 4, 2015 by plaintiff Thomas Wacker. Wacker Dkt. 1, ¶ 1. Wacker, a silver and gold futures trader who is self-financed, trades from home. Wacker Dkt. 14 (“Wacker Compl.”), ¶¶ 14-15.
A third action, 15 Civ. 995, began with a state court complaint filed on February 5, 2015 by plaintiff Mark Grumet. Grumet Dkt. 1, ¶ 1. Grumet has decades of experience in the commodities market; for more than two decades, he has traded silver and other commodity futures contracts for his own account. Grumet Dkt. 13 (“Grumet Compl.”), ¶ 15.
The defendants in each action are J.P. Morgan Chase & Co., J.P. Morgan Clearing Corp., J.P. Morgan Securities LLC, and J.P. Morgan Futures, Inc. (which has since merged into J.P. Morgan Securities LLC). See, e.g., Shak Compl. ¶¶ 16-19. These defendants will be referred to collectively as “JP Morgan.”
B. Facts
In short, plaintiffs allege that JP Morgan manipulated and dominated what they term the “silver futures spread market and in particular the ‘long-dated’ silver futures spread market” in late 2010 and early 2011. See id. ¶ 52.
1. The Silver Futures Calendar Spread Market
Silver futures contracts are agreements to buy or sell fixed amounts of silver on a certain future date. Id. ¶ 23. They are traded on the Commodity Exchange, Inc.
A spread contract consists of alternating positions in two futures contracts. Id. ¶ 28. In a “long” calendar spread, a party purchases a futures contract in a particular month and sells a corresponding contract in a later month. Id.' In a “short” calendar spread, a party sells a futures contract in a particular month and purchases a corresponding contract in a later month. Id. The spreads between silver futures contracts on a particular day are indicators of the “interest rate term structures of silver prices on that day.” Id. ¶ 30. The pricing of calendar spreads also often helps determine the pricing of deferred futures contracts. Id.
2. JP Morgan’s Alleged Conduct
During the period at issue in this case— late 2010 and early 2011 — JP Morgan was one of only., two or three remaining market makers in the silver futures markets. Id. ¶ 49. Thus, the market for deferred silver futures calendar spreads “essentially consisted of JPMorgan on one side and a small number of lower capitalized and very vulnerable locals and other independent proprietary traders acting as market makers on the other.” Id. ¶ 51. The plaintiffs were such traders. Id.; Wacker Compl. ¶ 51; Grumet Compl. ¶ 51. During this-time, JP Morgan’s silver trading desk was controlled by Robert Gottlieb, who used various COMEX floor brokers to execute his orders. Shak Compl. ¶ 55.
Plaintiffs allege that JP Morgan manipulated the silver futures spread market by taking large long positions in nearby silver futures months against short positions in the deferred futures months, id. ¶ 57, and then placing “large, uneconomic spread bids and offers ... just prior to the close,” id. ¶ 67. These spread orders, plaintiffs allege, influenced the settlement prices in deferred futures contracts, determined by the settlement committee. Id. This pushed the spreads toward the rare condition of “backwardation,” benefitting JP Morgan’s position. Id. During the same period, Gott-lieb also allegedly caused certain brokers to “harangue” COMEX employees, by pointing to JP Morgan’s own uneconomic bids and offers, so as to obtain JP Morgan’s desired settlement spreads. Id. ¶ 73.
This allegedly artificial market movement put pressure on plaintiffs’ positions, which they were ultimately forced to liquidate. Id. ¶¶ 76-77. JP Morgan itself took some of the Shak plaintiffs’ silver spread positions, while a hedge fund with “significant links” to JP Morgan, Wolverine Asset Management LLC, took most. Id. ¶¶ 78-79. These transfers took place on January 24, 2011. Id. ¶ 80. Similarly, Wacker and Grumet allege that, when they were ultimately forced to liquidate a few weeks later, JPv Morgan was “clearly the counter-party.” Wacker Compl. ¶ 80; Grumet Compl. ¶ 80. Wacker’s liquidation primarily took place on three dates (January 25, February 3, and February 7, 2011, see Wacker Compl. ¶ 93)
Plaintiffs articulate several reasons to believe JP Morgan engaged in such conduct. First, they allege that JP Morgan was motivated to manipulate the silver spreads market. They allege that manipulating the spreads benefited JP Morgan “in the context of physical transactions with its silver counterparties, which were based on COMEX silver futures price settlements.” Shak Compl. ¶ 98. They further allege that the manipulation improved JP Morgan’s traders’ “marked-to-market” positions. Id. ¶ 99.
Second, plaintiffs allege that “open interest” (the total number of futures in a delivery month that have not been offset or fulfilled by delivery) and “volume” (the number of contracts in futures transacted during a specific period of time) evidence JP Morgan’s manipulation. See id. ¶¶ 31-32. Plaintiffs allege that “JP Morgan’s market power is demonstrated by the high percentage of open interest it comprised in the deferred spreads” and “by the percentage of total volume JP Morgan’s [sic] commanded on particular trading days.” Id. ¶ 58. For instance, on certain of the dates that Wacker and Grumet sold their positions to JP Morgan, those trades accounted for 19%, 94%, 84%, and 70% of the daily volume, and the open interest in the particular calendar spreads was reduced by roughly the amount of the trades, showing, plaintiffs claim, that JP Morgan was the counterparty. Id. ¶¶ 60-61; see also ¶ 80 (as to Shak liquidation).
Third, plaintiffs allege that there was systematic, anomalous divergence between the silver spreads market and the over-the-counter (OTC) silver market, which should roughly track one another, absent manipulation. See id. ¶¶ 102-118. The silver OTC market “consists generally of bi-' lateral contracts between parties for various sorts of silvers swaps and other derivatives.” Id. ¶ 38. Like the spreads market, plaintiffs allege, the silver OTC market “is driven largely by interest rate mechanics.” Id. ¶ 40. Until late 2012, the Silver Indicative Forward Mid Rates (“SIFO”) was a “reliable benchmark” representing conditions in the OTC market. Id. ¶ 44. Prior to January 2011, plaintiffs allege based on an expert consultant’s analysis, SIFO and the silver futures spreads “were close to each other.” Id. ¶ 110. A “significant divergence” occurred between January and May 2011 (i.e., beginning around the time of JP Morgan’s alleged conduct), which, plaintiffs claim, is “potentially a sign of silver futures settlements being manipulated throughout the period.” Id. Specifically, during this time period, silver futures spreads diverged from SIFO by an average of “10 to 15 cents.” Id. ¶ 131. Because they converged again in May 2011, plaintiffs’ expert concluded, the divergence was not “due to a fundamental structural change in the silver market.” Id. ¶ 129. And because the divergence lasted several months, the expert concluded it was not due to the arrival of new information, which would be quickly absorbed by the market.
C. Procedural History
As noted, plaintiffs initiated these actions by filing complaints in early 2015: Shak on January 22, 2015; Waeker on February 4, 2015; and Grumet on February 5, 2015. See Shak Dkt. 1, ¶ 1; Waeker Dkt. 1, ¶ 1; Grumet Dkt. 1, ¶ 1. On February 11, 2015, JP Morgan removed each case to federal court. On March 10, 2015, at the parties’ request, see Shak Dkt. 10, the latter two actions were assigned to this Court as related to the first-filed Shak Action, with the consent of the other judges and the District’s case assignment committee. See Shak Dkt. 11.
On April 20, 2015, plaintiffs filed complaints in this Court. Shak Dkt. 14; Wacker Dkt. 14; Grumet Dkt. 13. Each brought seven claims: (1) three claims under the Commodities Exchange Act (“CEA”), 7 U.S.C. §§ 1, et seq., to wit, a claim of price manipulation in violation of 7 U.S.C. § 13(a)(2) and § 25(a), see Shak Compl. ¶¶ 201-02; a claim of manipulation by fraud and deceit in violation of 7 U.S.C. § 9 and § 25, see id. ¶ 210; and a claim of principal-agent liability under 7 U.S.C. § 2(a)(1)(B), see id. ¶ 217; (2) one claim under Section 2 of the Sherman Act, 15 U.S.C. § 2, alleging monopolization, conspiracy to monopolize, and attempt to monopolize, see id. ¶¶ 220-21; (3) one claim under New York General Business Law (NYGBL) § 340 (the Donnelly Act), alleging monopolization, see id. ¶ 232; (4) one claim under NYGBL § 349 alleging deceptive acts in the conduct of business, see id. ¶ 238; and (5) a state common-law claim for unjust enrichment, see id. ¶ 243.
On June 19, 2015, JP Morgan moved to dismiss all three complaints. Shak Dkt. 21. JP Morgan submitted a memorandum of law in support of these motions, Shak Dkt. 22 (“Def. Br.”), as well as a declaration of Amanda F. Davidoff, Shak Dkt. 23 (“Davi-doff Deck”), with attached exhibits. On August 18, 2015, plaintiffs filed a common memorandum of law in opposition. Shak Dkt. 28 (“PL Br.”). On September 17, 2015, JP Morgan filed a reply brief. Shak Dkt. 34 (“Def. Reply Br.”). On November 10, 2015, the Court held argument. Shak Dkt. 41 (“Tr.”).
II. Legal Standards on a Motion to Dismiss
To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead “enough facts to state a claim to relief that is plausible on its face.”
In considering a motion to dismiss, a district court must “accept[] all factual claims in the complaint as true, and draw[] all reasonable inferences in the plaintiffs favor.” Lotes Co. v. Hon Hai Precision Indus. Co.,
III. Discussion
A. Statutes of Limitations
The Court examines first whether plaintiffs’ claims are timely. For each plaintiff, nearly four years passed between the day in early 2011 when the plaintiffs position was liquidated (and when the plaintiff claims to have suffered an injury caused by JP Morgan) and the day in early 2015 when the plaintiff filed his complaint. Because plaintiffs’ claims are subject to different statutes of limitations, the Court examines each cause of action separately.
1. CEA Claims
CEA claims are subject to a two-year statute of limitations. 7 U.S.C. § 25(c). Plaintiffs make three arguments as to why their CEA claims are nonetheless timely— that: (1) the claims did not arise in early 2011, but at an unspecified later date; (2) the pendency of a related class action tolled the statute of limitations, and (3) the related class action ended, and the limitations clock began to run as to plaintiffs, not in December 2012, when a motion to dismiss the class action was granted, but in March 2013, when leave to replead was denied. For plaintiffs’ CEA claims to be timely, plaintiffs would be required to prevail on at least the second and third arguments, in which event the two-year statute of limitations would not have expired until March 2015, ie., some two months after they filed their complaints. In fact, none of plaintiffs’ arguments has merit.
a. When did plaintiffs’ CEA claims arise?
Plaintiffs argue that their CEA claims did not arise in early 2011 — at the time they were allegedly injured by the forced liquidation of their positions — but at an unspecified later date.
Under the CEA, the two-year statute of limitations begins to ran upon “discovery of the injury, not discovery of the other elements of a claim.” In re LIBOR-Based Fin. Instruments Antitrust Litig.,
The duty of inquiry arises when “circumstances would have suggested to a
Courts have characterized defendants as bearing a “heavy burden” on this point, because inquiry notice “exists only when uncontroverted evidence irrefutably demonstrates when plaintiff discovered or should have discovered” the fraudulent conduct. In re Crude Oil Commodity Futures Litig. (“In re Crude Oil"),
Here, plaintiffs argue that “at the time Plaintiffs liquidated their positions, they were not fully aware of the fact that JP Morgan was entirely on the opposite side of their contracts,” and that the “smattering of publicly available information” was insufficient to trigger a duty of inquiry. PI. Br. 16 (citing Koch,
The Court accordingly holds that plaintiffs’ duty of inquiry arose at the point when their positions were liquidated and
b. Was the statute of limitations ever tolled?
Plaintiffs, relying on the tolling doctrine announced in American Pipe & Construction Co. v. Utah,
The first complaint in what would become the Silver Class Action was filed on October 27, 2010. See Beatty v. JP Morgan Chase & Co., 10 Civ. 8146, Dkt. 1. A consolidated class action complaint was filed on September 12, 2011. Silver Class Action I,
Under American Pipe, “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.”
It appears to be undisputed that plaintiffs were members of the class in the Silver Class Action. PI. Br. 14. However, JP Morgan argues, the complaints here
Plaintiffs agree that the conduct involved in this case occurred in “different months” than the conduct underlying the Silver Class Action. PI. Br. 14 n.8. However, plaintiffs argue that the conduct at issue in the two cases occurred during the “same general time frame.” See id. (quoting Sharpe v. Am. Exp. Co.,
In arguing that alleged conduct in the “same general time frame” is close enough for tolling purposes, plaintiffs rely on a case that involved discriminatory conduct that was ongoing but that reached back in time enough to overlap with conduct covered by the prior class action. See Sharpe,
Moreover, the substantive differences between claimed illegalities in the Silver Class Action and those alleged here are significant, so as to clearly not trigger the rationale behind American Pipe. American Pipe tolling is based on the notion that, when a later individual suit “con-cernís] the same evidence, memories, and witnesses as the subject matter of the original class suit,” defendants cannot claim unfair surprise when they are subjected to the subsequent suit, even if the statute of limitations, absent tolling, would have otherwise barred it. American Pipe,
To be sure, while some allegations in the present case {e.g., the claim that JP Morgan caused brokers to “harangue” the settlement committee to achieve its desired settlement prices, see Shak Compl. ¶ 73) appear to be unique, there are some echoes or similarities between the theories of misconduct underlying this case and the prior class action. The class action involved accusations that JP Morgan “placed ... large volume (spoof) sell orders for silver futures just above the price at which the market was trading,” which “deceptively encouraged other traders to sell futures in the belief that the market was going to trade lower.” Silver Class Action Compl. ¶ 56. Here, too, plaintiffs allege a form of market manipulation: that JP Morgan placed uneconomic bids and offers at the close of trading in order to squeeze other market players. But this thematic similarity — -the common claim of a form of price manipulation — is insufficient to create the requisite overlap between the two cases. As plaintiffs acknowledge, the Silver Class Action “did not allege that JP Morgan was banging the close [i.e., placing large orders at the close of trading] to benefit its own trading position,” PI. Br. 28 n.20, which is the core allegation here.
The American Pipe requirement that the individual and class actions have involved essentially the same conduct is unsatisfied when defendants in the two cases are alleged to have engaged in similarly malodorous, but clearly factually different, forms of manipulation. Because the conduct alleged in the individual and class actions took place at different times and involved different trading positions, different derivatives, and significantly non-overlapping conduct, the fact that plaintiffs in both cases alleged forms of wrongful price manipulation by defendants is insufficient to trigger American Pipe tolling.
c. When did the prior class action end?
Even if the class action did toll the statute of limitations, plaintiffs’ theory that the toll extended until March 2013 does not follow. The class action ended— and thus the statute of limitations, assuming American Pipe tolling up to that point, began to run — on December 21, 2012, when Judge Patterson dismissed the Silver Class Action. Silver Class Action I,
Plaintiffs’ argument that the opportunity that Judge Patterson extended to move for leave to replead meant that tolling continued after the case was dismissed is unavailing. It is well settled that “dismissal of all class claims in a suit terminates tolling and causes the limitations period for each absent class member to resume running.” Scott v. D.C.,
For these reasons, the Court holds that the statute of limitations was not tolled by the pendency of the Silver Class Action, and that, even if it were tolled, plaintiffs’ CEA claims would still be time-barred. These claims therefore are dismissed as untimely.
2. NYGBL § 349 Claim
Plaintiffs’ NYGBL § 349 claim is subject to a three-year statute of limitations. N.Y. C.P.L.R. § 214(2). A § 349 private right of action accrues “when plaintiff has been injured by a deceptive act or practice violating section 349.” Gaidon v. Guardian Life Ins. Co. of Am.,
3. Antitrust Claims
Plaintiffs’ antitrust claims under both federal and state law are subject to a four-year statute of limitations. 15 U.S.C. § 15b; N.Y. G.B.L. § 340(5). As with the other statutes of limitations discussed above, “the statute begins to run when a defendant commits an act that injures a plaintiffs business.” Zenith Radio Corp. v. Hazeltine Research, Inc.,
JP Morgan, however, is correct that plaintiffs’ claims are significantly clipped here by operation of the statute of limitations, in that injuries incurred more than four years before the complaints were filed are not cognizable. In particular, JP Morgan notes that Wacker claims to have executed substantial trades on, inter alia, January 25, 2011 and February 3, 2011, more than four years before he filed his complaint (on February 4, 2015). The Court agrees that the damages traceable to trades executed more than four years before the filing of the complaint are not recoverable. See Stolow v. Greg Manning Auctions Inc.,
Nevertheless, as the parties agree, each set of plaintiffs has non-time-barred antitrust claims. Specifically, the Shak plaintiffs may seek damages arising from trades occurring on or after January 22, 2011; Waeker may seek damages arising from trades occurring on or after February 4, 2011; and Grumet may seek damages arising from trades occurring on or after February 5, 2011. Unlike the CEA and § 349 claims, plaintiffs’ antitrust claims are, in part, timely.
4. Unjust Enrichment Claim
Under New York law, claims of unjust enrichment are subject to a six-year limitations period where they seek equitable relief, but a three-year limitations period where they seek monetary damages. Matana v. Merkin,
On this point, the Court holds with JP Morgan. The distinctions that plaintiffs draw between their unjust enrichment claim and their CEA claims are illusory. The unjust enrichment claim is ultimately derivative and duplicative of the CEA claims — plaintiffs articulate no theory of unjust conduct independent of the alleged acts of market manipulation underlying the CEA claims.
Moreover, as to remedy, although restitution and formation of a constructive trust are indeed classed as equitable remedies, in ascertaining the governing statute of limitations, courts look beyond the form and to the substance of the sought-after remedy. See Access Point Med., LLC v. Mandell,
Plaintiffs’ unjust enrichment claim is, therefore, time-barred.
B. Antitrust Claims
To state a claim for monopolization under § 2 of the- Sherman Act and § 4 of the Clayton Act,
To have standing to assert a § 2 claim, plaintiffs must also plead an antitrust injury. Antitrust injury is an injury that is “of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Atl. Richfield Co. v. USA Petroleum Co.,
At the outset, the Court notes that plaintiffs’ claims far more naturally describe conduct prohibited by the CEA. The pricing machinations in which plaintiffs allege JP Morgan engaged to generate “backwardation” as to discrete silver futures contracts in early 2011 do not present a paradigmatic Sherman Act § 2 claim. And, as reviewed below, plaintiffs have scarcely attempted to plead the first § 2 element (the defendant’s possession of monopoly power in the relevant market) by the ordinary means of alleging the defendants’ market share. There is, therefore, good reason to' surmise that the antitrust claims were included as a hedge against the possibility (now realized) that the CEA claims would be held time-barred.
[24] Nevertheless, it is possible for the same course of conduct to violate the CEA and the Sherman Act. See Strobl v. N.Y. Mercantile Exch.,
1. Monopoly Power
As to the first element, plaintiffs allege that JP Morgan possessed monopoly power in the “silver futures spread market and in particular the ‘long-dated’ silver futures spread market.” Shak Compl. ¶ 52.
Ordinarily, monopoly power is established through proof that the defendant has a “large percentage share of the relevant market.” Heerwagen v. Clear Channel Commc'ns,
It is, therefore, necessary to first review the governing law as to the means by which the monopoly-power element can be established. In 1998, the Second Circuit held that monopoly power can be established in either of two ways: It “may be proven directly by evidence of the control of prices or the exclusion of competition, or it may be inferred from one firm’s large percentage share of the relevant market.” Tops Markets, Inc. v. Quality Markets, Inc.,
In the face of this body of authority, JP Morgan argues that the Circuit, in Heer-wagen, tacitly repudiated the direct-evidence option. JP Morgan overreads Heer-wagen. In that case, the Circuit did indeed state that a plaintiff offering direct evidence of price control or exclusion of competitors must still prove its claim “with reference to a particular market.” Id. at 229. But this statement does not close off this route to proving monopoly power. Rather, it teaches that a plaintiff who elects to proceed by offering direct evidence of monopoly power must situate that alleged power in the context of a particular market, such that the facts not only support anticompetitive conduct, but also that such conduct is indicative of a defendant’s status as a monopolist. See In re Aluminum Warehousing Antitrust Litig., No. 13 MD 2481 (KBF),
Reading Heerwagen to tacitly repudiate the direct-evidence mode of proof altogether, however, is inconsistent with the Circuit’s repeated approval of the Tops Markets passage, including in Heerwagen itself.
[26] The Court, therefore, rejects JP Morgan’s invitation to hold that the direct-evidence route to demonstrating monopoly power has been closed off. The Second Circuit, despite repeated opportunities to close off this route, has not done so. Absent clearer guidance from the Circuit, the Court therefore holds that monopoly power may be established, not only by proof of a defendant’s market share in a relevant market, but alternatively by direct evidence of a defendant’s price control or exclusion of competitors from a particular market in a manner indicative of its possession of monopoly power.
The Court therefore turns to consider whether plaintiffs’ pleadings are adequate, by either available means, to allege monopoly power.
a. Evidence of JP Morgan’s market share
In § 2 cases, plaintiffs commonly rely on indirect evidence of a defendant’s monopoly power, based on proof of its market share, “because direct measures are often difficult or impossible to prove.” Heerwagen,
As to the market definition, “[t]he relevant market must be defined ‘as all products reasonably interchangeable by consumers for the same purposes,’ because the ability of consumers to switch to a substitute restrains a firm’s ability to raise prices above the competitive level.” City of New York v. Grp. Health Inc.,
[29,30] Still, “an alleged product market must bear a rational relation to the methodology courts prescribe to define a market for antitrust purposes—analysis of the interchangeability of use or the cross-elasticity of demand.” Id. at 200 (quoting Gianna Enters. v. Miss World (Jersey) Ltd.,
Plaintiffs’ complaints here define the relevant market as the “silver futures spread market and in particular the ’long-dated’ silver futures spread market.” Shak Compl. ¶ 52. They do not, however, explain the basis for this definition. JP Morgan accordingly argues that these pleadings fail to define a relevant market because they “are devoid of allegations that this limited group of products — long-dated COMEX silver futures spreads — is not interchangeable with, for example, physical silver, OTC silver, or other silver derivatives.” Def. Br. 29.
Plaintiffs counter by relying on Judge Pauley’s decision in In re Crude Oil as establishing that the relevant market need not encompass both a physical commodity and related derivatives. PI. Br. 32 (citing In re Crude Oil,
Under these circumstances, JP Morgan’s critique of plaintiffs’ definition of the relevant market as the “silver futures spread market and in particular the ‘long-dated’ silver futures spread market” is apt. That definition is an ipse dixit. Plaintiffs fail entirely to allege why, for example, physical silver or other silver derivatives products are not interchangeable. This glaring pleading lapse makes plaintiffs’ market definition implausible. See Bayer Schering Pharma AG v. Sandoz, Inc.,
Even if plaintiffs’ complaints had plausibly defined the relevant market as the silver futures spread market, they fail to adequately plead JP Morgan’s share of that market. Plaintiffs allege that JP Morgan’s market power “is demonstrated by the high percentage of open interest it comprised in the deferred spreads” and by “the percentage of total volume JP Morgan’s [sic] commanded on particular trading days.” Shak Compl. ¶ 58. And, they allege, JP Morgan was one of only two or three market makers in the silver futures spread market. Id. ¶¶ 49-51. These pleadings, however, are little more than vague generalities about the spread market as a whole combined with evidence about trad
Seeking to sustain their market definition, plaintiffs’ counsel, at argument, urged that the Court could find market share limited to a several-day timespan. See Tr. 47 (arguing that In re Crude Oil “teaches that [market share] doesn’t have to be long lived”). But that observation, even if true, does not rectify the complaints’ failure to explain the parameters of the market as defined, or to satisfactorily take into account potential interchangeable products identified by JP Morgan. And in any event, In re Crude Oil and the cases on which it relies are factually quite distinct. Judge Pauley sustained a market defined as the January, March and April 2008 markets in physical WTI crude oil available in Cushing, Oklahoma, a market whose definition is far narrower and more clearly delineated than that offered here. See In re Crude Oil,
Plaintiffs’ complaints, therefore, fail to plead monopoly power by conventional means — by alleging sufficient market share in a properly pled market. To adequately plead monopoly power in a relevant market through evidence of JP Morgan’s market share, plaintiffs’ pleadings would need to be substantially more fulsome — both as to possible substitutes for silver spread contracts (so as to plead a proper market) and as to JP Morgan’s share of this market.
b. Direct evidence of anticompetitive effects
Plaintiffs primarily attempt to satisfy the monopoly-power element by means of direct evidence of price control or exclusion of competitors. They allege that, on “a nearly daily basis” in early 2011, JP Morgan placed large, uneconomic orders just before the close of trading. Shak Compl. ¶ 6. They allege that it 'did so, with the intention of using these orders and its dominant market position as to silver futures contracts, to influence settlement prices in a direction that favored its calendar spread positions, for the settlement committee relied on such market information in setting prices. See Shak Compl. ¶ 67. These uneconomic orders, plaintiffs allege, drove the silver spreads market into the rare state of “backwardation,” causing an anomalous divergence between silver spreads and OTC silver prices. This divergence, plaintiffs’ expert concluded, cannot be accounted for by alternative causes (e.g., other market forces or structural changes in the market). See id. ¶ 129.
In the first case, In re Crude Oil, Judge Pauley denied a motion to dismiss CEA and Sherman Act § 2 claims stemming from an alleged scheme to manipulate futures prices for West Texas Intermediate (WTI) crude oil.
In holding that the complaint adequately pled Parnon’s monopoly power, Judge Pauley emphasized the following allegations: (1) “the market’s abrupt shift from backwardation to contango when Parnon dumped its physical WTI position,” an anomalous shift that “happened only twice between January 2006 and January 2011— both times on the precise days Parnon dumped its WTI supply,” id. at 51; (2) defendants’ acquisition of “up to 92% of the next month’s deliverable WTI supply,” id. at 52; and (3) defendants’ intentional acquisition of “substantial positions in WTI calendar spreads that it knew would respond favorably to its activities in the physical market,” id. In denying Parnon’s motion to dismiss, Judge Pauley emphasized that “Defendants’ ability to change the market from backwardation to contan-go is ... a ‘direct measure’ of control.” Id. at 51 (quoting CFTC v. Parnon,
In the second case, In re Cotton Futures, Judge Carter denied a motion to dismiss CEA and Sherman Act claims arising from alleged power over and manipulation of the cotton futures market.
Synthesizing these two cases, they illustrate that concrete allegations of a dominant position in either a physical commodity or a related futures market, combined with significant pricing anomalies that are closely correlated with defendants’ alleged conduct, may be sufficient to plead monopoly power. Although not near
These allegations make plausible plaintiffs’ claim that, like the defendants in In re Crude Oil and In re Cotton Futures, JP Morgan possessed monopoly power on the dates in question. And these allegations have been made “with reference to a particular market,” as Heerwagen requires: the silver futures spread market. Heer-wagen does not require that a plaintiff who alleges monopoly power by means of direct' evidence of price control define the market with the same precision and punctiliousness {e.g., to exclude potential interchangeable products) that a plaintiff who alleges monopoly power solely by means of alleging the defendant’s market share must. And the Court is unaware of other authority erecting such a pleading requirement.
Therefore, plaintiffs have adequately alleged monopoly power.
2. Willful Acquisition of Monopoly Power
To state a claim for monopolization under § 2, plaintiffs must also allege “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” PepsiCo, Inc.,
In other words, a defendant’s conduct must not only be anticompetitive in effect, but anticompetitive in purpose as well. It must have been undertaken to obtain or cement monopoly power. The plaintiff must demonstrate exclusionary conduct — as opposed to gloves-off, hard-nosed market competition' — -aimed at obtaining or enshrining monopoly power, “harm[ing] the competitive process and thereby harmfing] consumers.” United States v. Microsoft Corp.,
Plaintiffs identify three categories of conduct by JP Morgan that, they claim, were of this nature. First, they allege that JP Morgan placed large, uneconomic orders just before the close of trading for the purpose of influencing settlement prices. See, e.g., Shak Compl. ¶¶ 65-67. Second, they allege that JP Morgan (specifically Gottlieb) “caused” certain floor brokers and clerks to “harangue” COMEX employees to set JP Morgan’s desired settlement
JP Morgan makes two arguments in response. First, it argues, plaintiffs’ allegations as to such practices “are entirely general,” and their complaints “identify no actual acts of abuse or uneconomic orders.” Def. Reply Br. 17. Second, JP Morgan argues, even if this conduct were pled with adequate specificity, it is not exclusionary. In other words, even if JP Morgan exploited its monopoly power on a given date so as to achieve pricing benefits for itself, “none of [that conduct] excludes competitors from the market.” Id.
For the reasons that follow, the Court agrees that plaintiffs have failed to adequately plead willful acquisition of monopoly power. Plaintiffs’ claims as to the practices alleged are, for the most part, pled in unacceptably vague terms. And plaintiffs’ complaints fail to adequately plead conduct aimed at acquiring or maintaining monopoly power.
As In re Crude Oil and In re Cotton Futures reveal, “an intentionally manipulative trading strategy to raise the prices of [futures] in order to profit from [defendants’] long positions” may constitute exclusionary conduct. In re Cotton Futures,
The detailed complaints in those two cases alleged such behavior. In In re Cotton Futures, the 99-page operative complaint alleged an “interconnected series of uneconomic steps [and] highly unusual steps ... contrary to the customs and practices of cotton market participants.” No. 12 Civ. 5126 (ALC), Dkt. 65 (“Cotton Compl.”), ¶ 44(b). Boiled down, the facts alleged were these: Defendants amassed large long positions in the May 2011 and July 2011 ICE [Intercontinental Exchange] cotton futures contracts, meaning they had the right to demand delivery at the expiration of those contracts. Id. ¶ 45. However, delivery is very rarely demanded on such futures contracts; instead, futures traders will typically offset their purchases with corresponding sales. Id. ¶¶ 18-19. Further, the complaint alleged that defendants’ need for physical cotton “could have been satisfied much more cheaply in the cash markets.” Id. ¶ 109. But instead of buying this lower-priced cotton on the cash markets and selling their higher-priced futures contracts, defendants insisted on delivery. Id. ¶ 63. This caused anomalous increases in the amount of open interest on these futures contracts as the settlement dates approached. Id. ¶ 52. It also caused an anomalous divergence between the cash and futures markets: In the cash markets, cotton prices continued to fall, but while this would normally dictate lower prices for short-term futures contracts, those contract prices remained inflated because of defendants’ unprecedented demands for delivery. Id. ¶¶ 56, 65. At this time, however, it was too late to increase the deliverable supply of cotton in the ICE warehouses, id. ¶ 52(1), and the existing supply was too low to satisfy defendants’ positions through delivery, id. ¶¶ 21(a)-(b). Thus, traders who had short positions on the futures contracts were forced to pay artificially high prices in order to liquidate those positions. Id. ¶ 11. These facts, Judge Carter held, raised a
In In re Crude Oil, the complaint alleged that defendant Parnon, aware of low supply in physical crude oil, amassed a large long calendar spread position by which it would profit if the price of February WTI crude oil futures was higher than the price of March futures. 11 Civ. 3600, Dkt. 66 (“Crude Oil Compl.”), ¶ 49(b). Par-non then purchased around 92% of the deliverable supply of physical crude oil, leading the market to perceive scarcity of supply. Id. ¶ 50(b). Parnon retained its physical position through the expiry date of the February/March contracts — and then liquidated its calendar spread positions at the artificially inflated prices it had created through its purchase of physical crude oil. Id. ¶ 50 (c)-(f). Next, Parnon amassed a short position in March/April calendar spreads at the artificial prices they had caused. Id. ¶ 51. Then Parnon dumped its physical supply on the market, so that the market abruptly moved from backwardation to contango, and the value of Parnon’s short calendar spreads increased. Id. ¶ 52. Parnon did all this, the complaint crucially alleged, despite having “no commercial need for WTI crude oil,” and despite realizing that selling a large quantity of crude oil right after the expiration of the next month’s futures contracts “would result in substantial losses (absent a manipulation).” Id. ¶ 50(e). Thus, although Parnon lost more than $15 million by selling its physical positions, it realized profits of more than $50 million as a result of its related calendar spread positions. Id. ¶ 65. These allegations were sufficient to support an inference of anticompetitive conduct aimed at undermining competitors’ market positions. In re Crude Oil,
The facts pled here as to ostensibly exclusionary conduct are a far cry from those pled in In re Crude Oil and In re Cotton Futures. No allegations raise a non-speculative inference that JP Morgan’s orders were “uneconomic” or that its representations to the COMEX staff or other market conduct were incompatible with the rational behavior of a legitimate competitor. See Silver Class Action II,
To be sure, plaintiffs’ claims that JP Morgan clustered its orders at the close of trading, see Shak Compl. ¶ 66, and made allegedly contradictory SIFO submissions, see id. ¶¶ 186-96, are not inconsistent with a scheme to acquire or maintain monopoly power. But they do not go beyond that to affirmatively plead the existence of such a scheme or to differentiate it in likelihood from conduct permissible under § 2. See Twombly,
Plaintiffs’ complaints further contrast with In re Crude Oil in that there are no allegations of statements by JP Morgan officials revealing the exclusionary purpose of the company’s actions. The complaint in In re Crude Oil quoted numerous communications indicative, as Judge Pauley found, of such anticompetitive knowledge and intent. See Crude Oil Complaint ¶¶ 47, 49, 52, 59. For instance, the complaint quoted communications from defendants to the effect that (1) there was a “shitload of money to be made shorting” the calendar spreads, id. ¶ 47; (2) the liquidation of defendants’ physical crude oil position represented an “inevitable puking” and that it had “the desired effect” on spread prices, id. ¶ 52; and (3) the scheme had affected the spreads “but not as much as hoped,” id. ¶ 59(d). No similar communications are alleged here.
In the end, plaintiffs’ claims pivot on the allegation that JP Morgan behaved in an exploitative manner towards counterparties on several days in early 2011. In general terms, they allege that, on these days, JP Morgan placed uneconomic orders at the close of trading and made misrepresentations to the settlement committee. But these allegations not only lack specifics — including, for particular orders, details such as dates, names, amounts, and prices. More fundamentally, they fail to connect this conduct to a scheme to willfully acquire or maintain monopoly power.
Plaintiffs also allege that JP Morgan, after exerting pressure on plaintiffs’ positions, refused to provide spread quotes and attempted to hide its positions adverse to the Shak plaintiffs by enlisting hedge fund Wolverine to take over some of these positions. See PI. Br. 34-35; Tr. 52-53. But these factual allegations suffer from the same failings as plaintiffs’ other allegations. First, they are imprecise: Plaintiffs are vague on when exactly spread quotes were refused them, by whom, and for how long. Indeed, at least Wacker’s and Gru-met’s complaints, closely read, do not concretely reveal a refusal to provide spread quotes at all. See Wacker Compl. ¶¶ 9, 80 (Gottlieb said he “would help [Wacker] exit the spread”); Grumet Compl ¶¶ 9, 80-81 (Grumet had to wait one day to obtain spread quote because Gottlieb was out of the office at a family funeral).
Second, plaintiffs’ complaints fail to allege that the refusal to provide spread quotes on these days was a stratagem aimed at acquiring and/or maintaining monopoly power. As to the acquisition of monopoly power, plaintiffs’ complaints allege, to the contrary, that JP Morgan initially acquired monopoly power in the silver futures market by being the last man standing after other market makers “disappeared.” Shak Compl. ¶ 49. This allegation does not violate § 2. Without more, it describes a mere “historic accident,” not deliberate conduct to secure a monopoly position. PepsiCo,
In sum, unlike the plaintiffs in In re Crude Oil and In re Cotton Futures, plaintiffs here have not made concrete allegations plausibly suggesting uneconomic behavior intended to acquire or maintain monopoly power, or satisfactorily distinguished JP Morgan’s conduct from that of a rational, hard-nosed market actor. This pleading deficiency requires dismissal of the § 2 claim of monopolization.
3. Antitrust Injury
To have standing to pursue a § 2 monopolization claim, plaintiffs must plead antitrust injury, that is, injury “of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Atl. Richfield Co.,
First, the party ... must identify the practice complained of and the reasons such a practice is or might be anticom-petitive. Next, we identify the actual injury the plaintiff alleges. ... Finally, we compare the anticompetitive effect of the specific practice at issue to the actual injury the plaintiff alleges.
Gatt Commc’ns, Inc. v. PMC Assocs., L.L.C.,
Here, JP Morgan argues, inter alia, that plaintiffs must allege not only a causal link between their injury and the asserted violation, but also that JP Morgan’s conduct affected the market generally. Def. Br. 34. Plaintiffs counter that JP Morgan’s conduct was anticompetitive “insofar as it forced Plaintiffs out of the market.” PI. Br. 37. The Court’s holding above — that plaintiffs have not adequately pled exclusionary or anticompetitive conduct — would appear to compel the conclusion that they have failed to allege antitrust injury as well, because the latter inquiry turns, inter alia, on “the reasons [defendants’] practice is or might be anticompetitive.” Gatt,
4. Conspiracy Claim
A Sherman Act § 2 claim for conspiracy to monopolize requires facts giving rise to a plausible inference of “(1) concerted action, (2) overt acts in furtherance of the conspiracy, and (3) specific intent to
Here, plaintiffs fail to allege an agreement. They argue that “the Complaints plead that Defendants conspired with COMEX’s settlement committee to manipulate silver spread prices.” PI. Br. 35. In fact, the cited paragraph alleges merely that JP Morgan’s brokers sat on the settlement committee. See Shak Compl. ¶ 67. Plaintiffs further argue that “JP Morgan also joined with Wolverine to conceal its control of the silver spread market by having Wolverine take over the Shak Plaintiffs’ silver spread positions.” PI. Br. 35-36. But, in fact, the paragraphs that plaintiffs cite for this proposition allege only that Wolverine “had significant links to JP Morgan.” Shak Compl. ¶ 79. These allegations fall short of what is necessary to adequately allege a conspiracy.
CONCLUSION
For the foregoing reasons, the Court grants JP Morgan’s motions to dismiss in their entirety. The Clerk of Court is directed to close the motion pending at Dkt. 21 for 15 Civ. 992; Dkt. 20 for 15 Civ. 994; and Dkt. 19 for 15 Civ. 995. The Court grants plaintiffs leave to file amended complaints limited to their Sherman Act § 2 claims and the corresponding state-law cause of action, solely to permit plaintiffs, in the event that they are aware of facts that would rehabilitate these claims, to add such facts to their pleadings. Any Amended Complaints are due two weeks from today. If no such complaints are timely filed, the Court’s dismissal will be with prejudice.
SO ORDERED.
Notes
. The Court assumes the facts alleged in the complaints to be true for the purpose of resolving the motions to dismiss. See Koch v. Christie’s Int’l PLC,
. After removal, a new complaint was filed in this Court naming only Shak and SHK Diversified, LLC as plaintiffs. See Shak Dkt. 14 (“Shak Compl.”), ¶¶ 14-15.
. The trades spanned January 7, 2011 to Feb-mary 25, 2011. Wacker Compl. ¶ 91.
. Some trades occurred as early as January 5, 2011, and as late as February 22, 2011. Gru-met Compl. ¶ 88.
. The Amended Complaints allege that other analyses performed by plaintiffs’ expert yielded the same conclusions. The expert performed a regression analysis that concluded that the relationship between silver futures spreads and SIFO decreased significantly in early 2011, but bounced back gradually starting in May 2011. See id. ¶¶ 132-53. A separate analysis concluded that the likelihood of “structural breaks” in the relationship between silver futures spreads and SIFO was greatest in early 2011, which, the expert concluded, was not due to the arrival of new information (as the break lasted many months, id. ¶ 165) or a fundamental change in the market (as the relationship normalized after May 2011, id. ¶ 166). See id. ¶¶ 154-166. Yet another analysis of “autoregressive mod
. The parties dispute whether the CEA claims must be pled with particularity under Fed R. Civ. P. 9(b), but because the Court dismisses these claims as time-barred, see infra, it need not reach that issue.
. It is also half-hearted: Plaintiffs' statement that they were "not fully aware” of JP Morgan's role as their counterparty tacitly admits that plaintiffs had some awareness of this point.
. The pleadings do not state when open interest for a trading day is known — on the date itself, or later. At argument, JP Morgan’s counsel represented, without contradiction, that open interest is available in "realtime.” Tr. 6. The Court’s holding that plaintiffs' CEA claims arose at the time their positions were liquidated does not turn on this fact, because it is independently supported by plaintiffs' awareness of JP Morgan's conduct on the trading floor.
. Unlike the Shak plaintiffs, Wacker and Gru-met allege that they liquidated their positions over the course of many weeks in early 2011.
. The class action complaint also mentions JP Morgan traders Marcus Elias and Chris Jordan, see
. Plaintiffs’ § 349 claims, if not time-barred, would clearly not survive the motion to dismiss. Plaintiffs cannot credibly maintain that the market in silver futures calendar spreads is "consumer oriented,” as required to sustain such claims. Plaintiffs’ sole basis for claiming that this element of a § 349 claim is met is that "the Complaints expressly allege broad impact on consumers, particularly with respect to numerous consumer goods that are made with silver.” PL Br. 39 (citing, e.g., Shak Compl. ¶ 238). But conclusory allegations of some downstream effect on consumers are insufficient where the product involved is "an instrument of high finance ... hardly a product that individuals purchase for 'personal, family, or household use.’ ” In re Libor,
. For related reasons, plaintiffs' unjust enrichment claim, even if not time-barred, would not state a claim. "Generally, if there is an adequate remedy at law, a court will not permit a claim in equity.” Bongat v. Fairview Nursing Care Ctr., Inc.,
. Section 2 of the Sherman Act, 15 U.S.C. § 2, provides:
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.
Section 4 of the Clayton Act, 15 U.S.C. § 15, confers standing on any private plaintiff "who shall be injured in his business or property by reason of anything forbidden in the antitrust laws” and provides for treble damages.
. Chapman v. N.Y. State Div. for Youth,
. Plaintiffs separately fail to explain why JP Morgan was under any duty to deal with plaintiffs at all. "[T]he sole exception to the broad right of a firm to refuse to deal with its competitors comes into play only when a monopolist seeks to terminate a prior (voluntary) course of dealing with a competitor.” In re Adderall XR Antitrust Litig.,
. For similar reasons, plaintiffs also fail to state a claim of attempted monopolization, which requires a showing of, inter alia, specific intent to monopolize. In re Crude Oil,