The World in U.S. Courts: Summer 2017 - Securities Law/Commodities Exchange Act (CEA)
Putative classes of futures and derivatives traders and of the owners of landholding and lease-holding interests asserted claims against a number of Brent crude oil producers, traders, and their selected affiliates. Among other things, the complaint alleged that the defendants conspired to manipulate Brent crude oil prices and the prices of Brent crude oil futures and derivatives contracts traded on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE Futures Europe”), in violation of the CEA. The defendants moved to dismiss the case, arguing that the claims amounted to an impermissible extraterritorial application of the statute.
The District Court in New York began by observing that neither the substantive provisions of the CEA nor the statute’s private right of action contains the clear statement of congressional intent necessary for the CEA to be given extraterritorial effect in connection with the claims made. The Court added that its task was thus to determine the “focus” of the statute, and with that focus in mind to determine whether the complaint was based on US domestic conduct that the CEA would cover. Reviewing relevant precedent, the Court concluded that the “focus” of the CEA was “transactional,” and that transactions could be deemed domestic (and within the scope of the CEA) if they either were executed on a US exchange or themselves reflected agreements deemed to have been made in the US. The Court noted that the existence of a US transaction was a necessary but not sufficient condition to application of the CEA, as prior appellate case law (the Parkcentral case) had declined to apply the CEA to a concededly “domestic” claim where the underlying conduct involved non-US defendants making misrepresentations that affected share prices outside the US. In that case, application of the US law was found to be inappropriate because the facts “were so predominantly foreign,” and imposing liability under US law might create a conflict with rules under the other country’s securities law regime.
Whatever the relevance of the underlying transactions, the parties disagreed about which transactions should even be addressed. Certain plaintiffs contended that the Court’s focus should be on their commodities transactions on NYMEX and ICE Futures Europe, while the Defendants drew the Court’s attention to the underlying transactions alleged to be manipulative—that is, their physical crude oil transactions in the North Sea and European loading ports, which could not be considered US domestic. The Court examined the CEA’s private right of action and concluded—as other courts had found as to the general US anti-fraud securities laws—that it appeared to be concerned with the integrity of securities transactions, not of underlying commodities transactions on which securities transactions might be based. Thus, siding with the plaintiffs on this issue, the Court concluded that the relevant transactions were US domestic.
But the Court nonetheless decided to dismiss the claims. Acknowledging that the plaintiffs’ transactions were not as tightly linked to transactions outside the US as was the case in the precedent earlier cited, the Court nonetheless found both cases to present the situation in which applying us law would subject the defendants to the potentially different requirements of different countries’ securities laws.
[Editor’s note: In re: North Sea Brent Crude Oil Futures Litigation is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]