17‐2233 Prime International Trading Ltd., et al., v. BP PLC, et al.
United States Court of Appeals for the Second Circuit
AUGUST TERM 2018
No. 17‐2233
PRIME INTERNATIONAL TRADING, LTD., WHITE OAKS FUND LP, KEVIN MCDONNELL, ANTHONY INSINGA, ROBERT MICHIELS, JOHN DEVIVO, NEIL TAYLOR, AARON SCHINDLER, PORT 22, LLC, ATLANTIC TRADING USA, LLC, AND XAVIER LAURENS,
Plaintiffs‐Appellants,
v.
BP P.L.C., TRAFIGURA BEHEER B.V., TRAFIGURA AG, PHIBRO TRADING L.L.C., VITOL S.A., MERCURIA ENERGY TRADING S.A., HESS ENERGY TRADING COMPANY, LLC, STATOIL US HOLDINGS INC., SHELL TRADING US COMPANY, BP AMERICA, INC., VITOL, INC., BP CORPORATION NORTH AMERICA, INC., MERCURIA ENERGY TRADING, INC., MORGAN STANLEY CAPITAL GROUP INC., PHIBRO COMMODITIES LTD., SHELL INTERNATIONAL TRADING AND SHIPPING COMPANY LIMITED, STATOIL ASA, AND ROYAL DUTCH SHELL PLC,
Defendants‐Appellees.+
_________________________________
+ The Clerk of Court is respectfully directed to amend the official caption as listed above. ARGUED: DECEMBER 10, 2018
DECIDED: AUGUST 29, 2019
Before: JACOBS, SULLIVAN, Circuit Judges, and KORMAN, District Judge
Appeal from a judgment of the United States District Court for the Southern District of New York (Carter, J.,) dismissing Plaintiffs‐Appellants’ claims for lack of personal jurisdiction as to Defendant‐Appellee Shell International Trading and Shipping Company Limited, for lack of jurisdiction under the Foreign Sovereign Immunities Act as to Defendant‐Appellee Statoil ASA, and for failure to state a claim as to all claims. Plaintiffs‐Appellants argue that the district court erred in concluding that their claims under the Commodity Exchange Act were impermissibly extraterritorial. Plaintiffs‐Appellants also contend that the district court erred in dismissing their Sherman Act claims, in concluding that the court lacked personal jurisdiction over Defendant‐Appellee Shell International Trading and Shipping Company Limited, and in dismissing claims against Defendant‐ Appellee Statoil ASA under the Foreign Sovereign Immunities Act. We disagree. Accordingly, we AFFIRM the district court’s dismissal of Plaintiffs‐Appellants’ Commodity Exchange Act claims in this opinion, and AFFIRM the dismissal as to all other Defendants‐Appellees and all other claims in a separately filed summary order.
DAVID E. KOVEL (Andrew M. McNeela on the brief), Kirby McInerney LLP, New York, NY, for Plaintiffs‐Appellants.
RICHARD C. PEPPERMAN (Daryl Libow, Amanda Davidoff, Austin L. Raynor on the brief), Sullivan & Cromwell LLP, New York, NY for Defendants‐Appellees BP PLC, BP America, Inc. and BP Corporation North America, Inc.
Judge Edward R. Korman, of the United States District Court for the Eastern District of New York, sitting by designation. 2 DAVID B. SALMONS (Steven A. Reed, R. Brenda Fee, Michael E. Kenneally, on the brief) Morgan, Lewis & Bockius LLP, Philadelphia, PA for Defendant‐Appellee Shell International Trading and Shipping Company Limited.
PERRY A. LANGE (David S. Lesser on the brief) Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC for Defendant‐Appellee Statoil ASA.
RICHARD J. SULLIVAN, Circuit Judge:
This appeal requires us to decide whether alleged misconduct tied to the
trading of crude oil extracted from Europe’s North Sea constitutes an
impermissibly extraterritorial application of the Commodity Exchange Act. For
the reasons set forth below, we find that it does, and therefore affirm the dismissal
of Plaintiffs‐Appellants’ claims.
I. BACKGROUND
Plaintiffs‐Appellants (“Plaintiffs”)1 are individuals and entities who traded
futures and derivatives contracts pegged to North Sea oil – also known as Brent
crude – on the Intercontinental Exchange Futures Europe (“ICE Futures Europe”)
1 Plaintiffs‐Appellants are: Prime International Trading, Ltd., White Oaks Fund LP, Kevin McDonnell, Anthony Insinga, Robert Michiels, John Devivo, Neil Taylor, Aaron Schindler, Port 22, LLC, Atlantic Trading USA, LLC, and Xavier Laurens. 3 and the New York Mercantile Exchange (“NYMEX”) between 2002 and 2015 (the
“Class Period”).
Defendants‐Appellees (“Defendants”)2 are a diverse group of entities
involved in various aspects of the production of Brent crude. In addition to
producing, refining, and distributing Brent crude, Defendants also purchase and
sell Brent crude on the physical market and trade Brent‐crude‐based futures
contracts on global derivatives markets.
A. Brent Crude Physical Market
Brent crude is extracted from the North Sea of Europe, and refers to oil
pulled from four fields in the region: Brent, Forties, Oseberg, and Ekofisk
(collectively, “BFOE”). The price of Brent crude serves as the benchmark for two‐
thirds of the world’s internationally‐traded crude.
Following extraction, Brent crude is delivered via pipeline to ports in
Europe where it is loaded onto ships for delivery. These physical cargoes are
bought and sold through private, over‐the‐counter (“OTC”) transactions between
2 Defendants‐Appellees are: BP p.l.c., Trafigura Beheer B.V., Trafigura AG, Phibro Trading L.L.C., Vitol S.A., Mercuria Energy Trading S.A., Hess Energy Trading Company, LLC, Statoil US Holdings Inc., Shell Trading US Company, BP America, Inc., Vitol, Inc., BP Corporation North America, Inc., Mercuria Energy Trading, Inc., Morgan Stanley Capital Group Inc., Phibro Commodities Ltd., Shell International Trading and Shipping Company Limited (“STASCO”), Statoil ASA (“Statoil”), and Royal Dutch Shell Plc. 4 producers, refiners, and traders. Because these physical transactions are private
and do not occur on an open exchange, the price of Brent crude is not immediately
available to the public. Instead, price‐reporting agencies collect information about
transactions from market participants and report it to the consuming public.
B. Platts and the Dated Brent Assessment
Platts is a prominent London‐based price‐reporting agency that collects
information from market participants regarding their physical Brent crude
transactions, analyzes that data to compute benchmark prices, and publishes those
prices in real‐time price reports as well as various end‐of‐day price assessments.
The price reports track several different submarkets in the Brent crude market, but
the “primary pricing benchmark”—widely regarded as the “spot” price for Brent
crude – is the “Dated Brent Assessment.”
The Dated Brent Assessment tracks physical cargoes of North Sea crude oil
that have been assigned specific delivery dates. Rather than averaging the prices
of the four grades of Brent crude, the Dated Brent Assessment is based on the
lowest price among the four grades, and is calculated each day during the
assessment period. Platts uses a Market‐on‐Close (“MOC”) methodology, under
which Platts tracks all Brent crude trading activity during the day, but weighs
5 most heavily the bids, offers, and transactions that occur at the end of each trading
day, from 4:00 to 4:30 P.M. GMT.
Although Platts relies on market participants to voluntarily self‐report their
private transactions in order to create and publish the Dated Brent Assessment,
they do not just mechanically recite the reported trade activity. Instead, Platts
exercises its own discretion to accept or reject transactional data, and makes this
assessment based on the reliability, accuracy, and consistency of such data. At the
end of the day, Platts’ goal in publishing the Dated Brent Assessment is to
accurately reflect market prices and to avoid distortion or artificiality.3
C. Brent Futures Market
Plaintiffs focus their claims on Brent‐related futures and derivatives
contracts (“Brent Futures”), which are primarily traded on two exchanges:
NYMEX and ICE Futures Europe. NYMEX is a U.S.‐based commodity futures
exchange, while ICE Futures Europe is a London‐based exchange. Plaintiffs and
other market participants trade on both exchanges. The most heavily traded Brent
Futures contract is the “ICE Brent Futures Contract,” which has a corollary
3 Indeed, according to its website, Platts “makes every effort to detect anomalous market behaviors and act swiftly to ensure these do not undermine the integrity of its assessments.” JA 735. 6 contract on the NYMEX. These contracts stop trading, or “expire,” approximately
two weeks before the delivery month. If a futures contract is not offset before it
expires, the contract is cash‐settled. In other words, the in‐the‐money
counterparty receives the cash value of the contract rather than the underlying
asset itself.
Brent Futures traded on ICE Futures Europe (“ICE Brent Futures”) are cash‐
settled based on an established benchmark known as the ICE Brent Index. Brent
Futures traded on the NYMEX, in turn, settle at expiration to the price of ICE Brent
Futures. Unlike the Dated Brent Assessment – which Platts calculates based on
prices for the least expensive BFOE grade of Brent cargoes – the ICE Brent Index
is calculated based on the entire BFOE market of physical Brent cargoes. In
addition, the ICE Brent Index incorporates an average of certain designated price‐
reporting assessments, one of which, Plaintiffs allege, is the Dated Brent
Assessment.
Beyond this incorporation, Plaintiffs provide several other points of support
for their claim of a “direct[] link” between Brent Futures settlement prices and the
Dated Brent Assessment. Specifically, they contend that the “ICE Brent Futures
Contracts prices rarely deviate from the Dated Brent Assessment by more than 1%
7 at expiration,” and that “changes in the Dated Brent Assessment directly impact[]
Brent Futures prices.”
D. The Alleged Manipulation
Plaintiffs allege that Defendants conspired to manipulate, and did in fact
manipulate, the market for physical Brent crude and Brent Futures by executing
fraudulent bids, offers, and transactions in the underlying physical Brent crude
market over the course of the Class Period. Defendants allegedly conducted these
trades during the MOC window and then systematically reported the artificial
transactions to Platts with the intention of manipulating the Dated Brent
Assessment. According the Plaintiffs, Defendants’ aim in doing so was “to benefit
their physical Brent and Brent Futures positions,” while the consequent
manipulation of Brent Futures prices caused Plaintiffs to suffer economic loss
because they transacted in Brent Futures during this time.
Plaintiffs’ claim involves a causal chain that can be summarized as follows:
Defendants engaged in artificial trades of physical Brent crude in foreign markets;
Defendants systematically reported the artificial trade data to Platts; Platts
reviewed and incorporated the fraudulent data into its calculation of the Dated
Brent Assessment; ICE Futures Europe in turn incorporated the manipulated
8 Dated Brent Assessment into the ICE Brent Index; the manipulated ICE Brent
Index was used to settle Brent Futures that were traded on both the London‐based
ICE Futures Europe and the U.S.‐based NYMEX; as a result, Brent Futures traded
and settled at artificial prices, causing economic loss to traders such as Plaintiffs.
Plaintiffs – as they acknowledge – “do not allege a single overarching
conspiracy among all Defendants for the full Class Period,” nor do they allege that
the physical Brent crude market was monopolized by all Defendants
simultaneously. Moreover, Plaintiffs do not assert that Defendants engaged in any
manipulative trading on NYMEX or ICE Futures Europe. Rather, Plaintiffs limit
the focus of their claim to Defendants’ foreign physical market transactions,
arguing that these transactions initiated a chain of events that caused ripple effects
across global commodities markets.
B. Procedural History
In 2013, Plaintiffs filed various independent cases against Defendants.
Those cases were consolidated and transferred to the Southern District of New
York (Carter, J.) in October 2013. Defendants filed an Amended Complaint on July
3, 2014, and filed a Second Amended Complaint (“SAC”) on February 27, 2015. In
the SAC, Plaintiffs asserted claims under (1) Sections 6(c)(1) and 9(a)(2) of the
9 Commodity Exchange Act (“CEA”), 7 U.S.C. §§ 9(1)(a), 13(a)(2), including
derivative claims for respondeat superior and for aiding and abetting, see 7 U.S.C. §§
2(a)(1)(B), 25(a)(1)4; (2) Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; and
(3) the common law for unjust enrichment. On July 28, 2014, Defendants Statoil
and STASCO individually filed motions to dismiss based, respectively, on lack of
subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and
lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2).
That same day, all Defendants moved to dismiss all claims made in the SAC
pursuant to Federal Rule of Civil Procedure 12(b)(6).
The district court granted Statoil’s motion to dismiss for lack of subject
matter jurisdiction under the Foreign Sovereign Immunities Act, and granted
STATSCO’s motion to dismiss for lack of personal jurisdiction. Additionally, the
district court granted the remaining Defendants’ joint motion to dismiss all the
claims in the SAC on the grounds that (1) Plaintiffs did not allege antitrust
standing on their Sherman Act claims, and (2) their claims under the CEA were
impermissibly extraterritorial. Plaintiffs filed a timely notice of appeal.5
4 Section 22 of the CEA, 7 U.S.C. § 25, gives Plaintiffs a private right of action to sue for these violations. 5 In this opinion, we only address Plaintiffs’ appeal of the dismissal of their CEA claims. We
separately address the dismissal of Plaintiffs’ Sherman Act claims, as well as the dismissal of 10 II. STANDARD OF REVIEW AND JURISDICTION
“We review de novo the grant of a motion to dismiss for failure to state a
claim upon which relief can be granted under Federal Rule of Civil Procedure
12(b)(6).” Harris v. Mills, 572 F.3d 66, 71 (2d Cir. 2009). We have jurisdiction under
28 U.S.C. § 1291.
III. DISCUSSION
The CEA is a “remedial statute that serves the crucial purpose of protecting
the innocent individual investor—who may know little about the intricacies and
complexities of the commodities market—from being misled or deceived.”
Commodity Futures Trading Commʹn v. R.J. Fitzgerald & Co., 310 F.3d 1321, 1329 (11th
Cir. 2002). This case implicates two antifraud provisions of the CEA. Section
6(c)(1) of the CEA makes it “unlawful for any person . . . to use or employ, . . . in
connection with any swap, or a contract of sale of any commodity, . . . any
manipulative or deceptive device.” 7 U.S.C. § 9(a)(1). Additionally, Section 9(a)(2)
proscribes “manipulat[ing] or attempt[ing] to manipulate the price of any
commodity in interstate commerce.” 7 U.S.C. § 13(a)(2). Plaintiffs seek to enforce
these substantive provisions of the CEA through the Act’s private right of action,
Statoil and STASCO on other grounds, in a summary order issued simultaneously with this opinion. Plaintiffs do not appeal the dismissal of their unjust enrichment claim. 11 which permits a party to bring suit against a person whose violation of the CEA
“result[s] from one or more of the transactions” listed in the statute. See 7 U.S.C. §
25(a)(1). At bottom, this case centers on our interpretation of the CEA –
specifically, whether it permits suit against Defendants for alleged manipulative
conduct that transpired in Europe.
We interpret the CEA in light of the presumption against extraterritoriality,
a canon of statutory interpretation that is a “basic premise of our legal system.”
RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2100 (2016); see also United States
v. Palmer, 3 Wheat. 610, 631 (1818) (Marshall, C.J.) (“[G]eneral words must . . . be
limited to cases within the jurisdiction of the state”); Antonin Scalia & Bryan
Garner, Reading Law: The Interpretation of Legal Texts 268 (2012). “Absent clearly
expressed congressional intent to the contrary,” federal laws must be “construed
to have only domestic application.” RJR Nabisco, 136 S. Ct. at 2100. This reflects
the “commonsense notion that Congress generally legislates with domestic
concerns in mind,” Smith v. United States, 507 U.S. 197, 204 n.5 (1993), and acts to
“protect against unintended clashes between our laws and those of other nations
which could result in international discord,” EEOC v. Arabian Am. Oil Co., 499 U.S.
244, 248 (1991).
12 Generally, courts engage in a “two‐step framework for analyzing
extraterritoriality issues.” RJR Nabisco, 136 S. Ct. at 2101. First, because there must
be an “affirmative intention of the Congress clearly expressed” to give a statute
extraterritorial effect, Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247, 255 (2010)
(quoting Arabian Am. Oil, 499 U.S. at 248), courts look to the text of the statute to
discern whether there is a “clear indication of extraterritoriality,” id. at 265; see also
WesternGeco LLC v. ION Geophysical Corp., 138 S. Ct. 2129, 2136 (2018). If the statute
lacks such a “clear statement” of extraterritorial effect, the statute does not apply
abroad. Morrison, 561 U.S. at 265.
However, a claim may still survive if it properly states a “domestic
application” of the statute. See id. at 266. As it is “a rare case . . . that lacks all
contact with the territory of the United States,” id. (emphasis in original), many
cases present a mixed bag of both domestic and foreign components. Accordingly,
at the second step, courts must evaluate whether the domestic activity pleaded is
the “focus of congressional concern.” Id. In other words, because the presumption
against extraterritoriality would be a “craven watchdog indeed” if it “retreated to
its kennel whenever some domestic activity is involved,” id. (emphasis in original),
13 courts must evaluate whether the domestic activity involved implicates the
“focus” of the statute.
Therefore, we first assess the text of each of the three provisions implicated
by this suit – the two substantive regulations, Sections 6(c)(1) and 9(a)(2), and the
private right of action, Section 22 – to determine if any of them contains a “clear
indication of extraterritoriality.” Morrison, 561 U.S.A at 265; see RJR Nabisco, 136 S.
Ct. at 2106–2111 (evaluating extraterritorial application of RICO’s private right of
action provision separately from substantive RICO provisions).
A. Affirmative Intention to Apply Extraterritorially
As to whether Congress intended Section 22 to apply to conduct abroad,
circuit precedent provides the answer. In Loginovskaya v. Batratchenko, we held that
since Section 22 of the CEA “is silent as to extraterritorial reach,” suits funneled
through this private right of action “must be based on transactions occurring in
the territory of the United States.” 764 F.3d 266, 271, 272 (2d Cir. 2014).6
The same is also true of Sections 6(c)(1) and 9(a)(2). Specifically, Section
6(c)(1) proscribes “us[ing] or employ[ing], . . . in connection with any swap, or a
6 While the Dodd‐Frank Wall Street Reform and Consumer Protection Act amended the CEA to apply extraterritorially to certain swap‐related activities, see 7 U.S.C.A. § 2(i), that amendment does not affect our analysis here for reasons separately explained below. 14 contract of sale of any commodity, . . . any manipulative or deceptive device.” 7
U.S.C. § 9. Thus, on its face, Section 6(c)(1) – like Section 22 – “lacks . . . a clear
statement of extraterritorial effect.” Morrison, 561 U.S. at 265. Section 9(a)(2),
which prohibits “manipulat[ing] or attempt[ing] to manipulate the price of any
commodity in interstate commerce,” 7 U.S.C. § 13, likewise contains no
affirmative, textual indication that it applies to conduct abroad. By contrast, as the
Supreme Court noted in Morrison, other provisions in the securities laws, such as
15 U.S.C. § 78dd(a), “contain[] what [Sections 6(c)(1) and 9(a)(2)] lack[ ]: a clear
statement of extraterritorial effect.” Morrison, 561 U.S. at 265.
Plaintiffs make a last‐ditch effort to establish that extraterritorial application
of the CEA is proper by resorting to a separate provision – Section 2(i). Enacted
pursuant to the Dodd‐Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111‐203, 124 Stat. 1376 (2010), Section 2(i) of the CEA states:
The provisions of this Act relating to swaps . . . shall not apply to activities outside the United States unless those activities – (1) have a direct and significant connection with activities in, or effect on, commerce of the United States; or (2) contravene such rules or regulations as the Commission may prescribe . . . to prevent the evasion of any provision of this Act.
7 U.S.C.A. § 2(i). Unlike Sections 6(c)(1) and 9(a)(2), Section 2(i) contains, on its
face, a “clear statement,” Morrison, 561 U.S. at 265, of extraterritorial application.
15 If there were any lingering doubts about whether Sections 6(c)(1) and 9(a)(2)
independently apply extraterritorially, Section 2(i) forecloses those doubts,
because it shows that Congress “knows how to give a statute explicit
extraterritorial effect . . . and how to limit that effect to particular applications”
within the CEA. Morrison, 561 U.S. at 265 n.8. Therefore, the existence of an
enumerated extraterritorial command in Section 2(i) reinforces our conclusion that
the lack of any analogous directive in either Section 6(c)(1) or Section 9(a)(2) bars
their extraterritorial application here.
As for Plaintiffs’ contention that Section 2(i) applies extraterritorially here
because there is a “direct and significant connection” to the United States, even a
charitable reading of the docket reveals that Plaintiffs neglected to raise this
argument until after the district court rendered its final judgment. Indeed,
Plaintiffs did not even mention this argument in their opposition to Defendants’
motion to dismiss. See Doc. No. 148 (“CFTC Amicus Br.”) at 4 (“The Commission
takes no position on whether or how Section 2(i) may apply here. That was not
litigated below . . . .”). We have found an argument to be waived for purposes of
appellate review where a litigant “failed to make any such argument in opposition
to the defendants’ motion.” Askins v. Doe No. 1, 727 F.3d 248, 252 (2d Cir. 2013).
16 Hence, Plaintiffs have waived the argument that Section 2(i) sustains claims
encompassing “swap‐related” Brent transactions. See Morrison, 561 U.S. at 254
(reiterating that a question regarding the extraterritorial reach of a federal statute
presents a “merits question,” not a question of subject‐matter jurisdiction).7
B. Domestic Application of Sections 22, 6(c)(1), and 9(a)(2)
Plaintiffs urge that even if the relevant provisions of the CEA do not apply
extraterritorially, the district court erred because the SAC alleges a proper
“domestic application of the statute.” RJR Nabisco, 136 S. Ct. at 2101 (“If the statute
is not extraterritorial, then at the second step we determine whether the case
involves a domestic application of the statute.”).
Whether Plaintiffs’ claims constitute a satisfactory domestic application of
the CEA requires us to discern the “focus of congressional concern” in enacting
the statute. Morrison, 561 U.S. at 266. To divine the CEA’s “focus,” we consider
the “conduct” that the statute “seeks to regulate,” as well as “the parties and
7 Even if we considered the applicability of Section 2(i), our conclusion would not change. The most recent acts of the alleged manipulation described by Plaintiffs occurred in September 2012, before Section 2(i) became effective, and the provision is silent as to retroactive application. Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988) (“[C]ongressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result.”).
17 interests it seeks to protect or vindicate.” WesternGeco, 138 S. Ct. at 2137 (quoting
Morrison, 561 U.S. at 267). Our inquiry is guided by the statute’s text, see Morrison,
561 U.S. at 266–69, as well as how the “statutory provision at issue works in
tandem with other provisions,” WesternGeco, 138 S. Ct. at 2137.
Importantly, we must discern the “focus” of each provision individually, for
even if Plaintiffs satisfactorily pleaded a domestic application for one of the
conduct‐regulating provisions – i.e., Sections 6(c)(1) and 9(a)(2) – they must also
do the same for the CEA’s private right of action provision, Section 22. See
Loginovskaya, 764 F.3d at 272; see also RJR Nabisco, 136 S. Ct. at 2106 (“[W]e
separately apply the presumption against extraterritoriality to RICO’s [private]
cause of action.”). Because Plaintiffs’ suit “must satisfy the threshold requirement
of CEA § 22 before reaching the merits of [their] § [6(c)(1) and 9(a)(2)] fraud
claim[s],” Loginovskaya, 764 F.3d at 272, we start by assessing whether Plaintiffs
have pleaded a proper domestic application of Section 22.
1. Section 22
In Loginovskaya, we held that the focus of congressional concern in Section
22 is “clearly transactional,” given its emphasis on “domestic conduct [and]
domestic transactions.” Id. Thus, in order for Plaintiffs to state a proper domestic
18 application of Section 22, the suit “must be based on transactions occurring in the
territory of the United States.” The “domestic transaction test” essentially
“decides the territorial reach of [Section] 22.”8 Id.
To assess whether Plaintiffs pleaded permissibly domestic transactions
under Section 22, typically we would apply a test first announced in Absolute
Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012). However,
following the course we have taken in securities cases, see Parkcentral Global Hub
Ltd. v. Porsche Automobile Holdings SE, 763 F.3d 198, 216 (2d Cir. 2014), we need not
decide definitively whether Plaintiffs’ transactions satisfy Absolute Activist, for (as
discussed below) their claims are impermissibly extraterritorial even if the
transactions are domestic. Thus, we assume without deciding that Plaintiffs’
trades on NYMEX and ICE Futures Europe constituted “domestic transactions”
under Section 22.
In Parkcentral, investors in equity swaps pegged to the price of Volkswagen
stock sued under Section 10(b), alleging that defendants made misleading
8 In evaluating whether Plaintiffs’ claims fit within the “focus” of Section 22, we must assess the “conduct relevant to the statute’s focus.” WesternGeco, 138 S. Ct. at 2137 (emphasis added) (quoting RJR Nabisco, 136 S. Ct. at 2101). Defendants do not dispute that the “relevant conduct” under Section 22 is the purchase and sale of Brent Futures. As such, for the purposes of our Section 22 analysis, we take those commodities transactions to be the relevant conduct. 19 statements that sought to hide their intentions to take over Volkswagen. 763 F.3d
at 201–02. All of defendants’ misconduct occurred in Germany, and Volkswagen
stock only traded on European stock exchanges. Id. We assumed without
deciding that the equity swaps at issue there were “domestic transactions” under
Section 10(b), but nonetheless dismissed the claims because the facts in that case
rendered the suit “predominately foreign.” Id. at 216. The predicate to our
conclusion in Parkcentral was the maxim that “a domestic transaction or listing is
necessary” but “not alone sufficient” to state a claim under Section 10(b). Id. at 215–
16 (emphasis in original). The question this case presents is whether Parkcentral’s
rule carries over to the CEA. We hold that it does.
For starters, Section 22 creates no freestanding, substantive legal obligations;
instead, it requires the “commission of a violation of this chapter.” 7 U.S.C. §
25(a)(1); see Doc. No. 242 (“Chamber of Commerce et al. Amicus Br.”) at 20. And
as already discussed above, the conduct‐regulating provisions of the CEA –
particularly those at issue here – apply only to domestic conduct, and not to foreign
conduct. See supra Section III.A. Put differently, while a domestic transaction is
necessary to invoke Section 22, it is not sufficient, for a plaintiff must also allege a
domestic violation of one of the CEA’s substantive provisions. So Parkcentral’s
20 insight – that a domestic securities transaction is necessary but not sufficient to
state a claim under Section 10(b), see Parkcentral, 763 F.3d at 214 – is required by
the text and structure of Section 22. To hold otherwise would be to divorce the
private right afforded in Section 22 from the requirement of a domestic violation
of a substantive provision of the CEA. See WesternGeco, 138 S. Ct. at 2137 (“If the
statutory provision at issue works in tandem with other provisions, it must be
assessed in concert with those other provisions. Otherwise, it would be impossible
to accurately determine whether the application of the statute in the case is a
‘domestic application.’” (quoting RJR Nabisco, 136 S. Ct. at 2017)); see also Chamber
of Commerce et al. Amicus Br. at 20–21. To state a proper claim under Section 22
in this case, Plaintiffs must allege not only a domestic transaction, but also
domestic – not extraterritorial – conduct by Defendants that is violative of a
substantive provision of the CEA, such as Section 6(c)(1) or Section 9(a)(2). See
WesternGeco, 138 S. Ct. at 2137–38 (looking to “the type of infringement that
occurred” in analyzing whether litigant stated a domestic application of the
damages remedy provision of the Patent Act, and concluding that it did because
“[t]he conduct in this case that is relevant to th[e] [statute’s] focus clearly occurred
in the United States”).
21 Besides the structure of the CEA and the language of Section 22, the
presumption against extraterritoriality also counsels in favor of extending
Parkcentral’s holding to the instant case. Permitting a suit to go forward any time
a domestic transaction is pleaded would turn the presumption against
extraterritoriality into a “craven watchdog,” Morrison, 561 U.S. at 266, and would
fly in the face of the Supreme Court’s clear guidance that the presumption against
extraterritoriality cannot evaporate any time “some domestic activity is involved
in the case,” id. (emphasis in original). As Morrison notes, the mere fact that a
domestic transaction – i.e., “some” domestic activity – is involved is insufficient to
rebut the presumption against extraterritoriality in light of the fact that “[f]oreign
conduct is generally the domain of foreign law,” Microsoft Corp. v. AT&T Corp., 550
U.S. 437, 455 (2007). Parkcentral recognized this very concern, reasoning that “a
rule making [Section 10(b)] applicable whenever the plaintiff’s suit is predicated
on a domestic transaction,” regardless of the “foreignness of the facts,” would
trample on Morrison by requiring us to apply the statute to “wholly foreign
activity,” Parkcentral, 763 F.3d at 215. In addition, potential “unintended clashes
between our laws and those of other nations . . . could result in international
discord,” Arabian Am. Oil, 499 U.S. at 248, if we “adopt an interpretation of U.S.
22 law that carries foreign policy consequences not clearly intended by the political
branches,” Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108, 116 (2013) (quoting
Benz v. Compania Naviera Hidalgo, S.A., 353 U.S. 138, 147 (1957)). Given that courts
“have looked to the securities laws” when asked “to interpret similar provisions
of the CEA,” Loginovskaya, 764 F.3d at 272, we do not hesitate in applying
Parkcentral’s gloss on domestic transactions under Section 10(b) to domestic
transactions under Section 22 of the CEA. Therefore, while a domestic transaction
as defined by Absolute Activist is “necessary” to invoke the private remedy
afforded by Section 22, it is not “sufficient.”
In order to close the gap between “necessary” and “sufficient,” Plaintiffs’
claims must not be “so predominately foreign as to be impermissibly
extraterritorial.” Parkcentral, 763 F.3d at 216. Here, the facts are remarkably similar
to those in Parkcentral, and therefore leave little doubt that Plaintiffs’ claims are
“predominately foreign.”
In both cases, plaintiffs traded derivatives – in Parkcentral, equity swaps, and
here, futures contracts – which, by their nature, are pegged to the value of another
asset. Both underlying assets were foreign: Parkcentral involved the price of
Volkswagen stock traded on European stock exchanges, and here Plaintiffs’
23 transactions were based on the Dated Brent Assessment, which itself reflects, in
part, the value of Brent crude physically traded in Northern Europe. The alleged
misconduct in both instances was also entirely foreign. Indeed, Parkcentral’s facts
are perhaps less predominantly foreign than those alleged here, since the
misleading statements at issue in Parkcentral were “accessible in the United States
and were repeated here by the defendants,” Parkcentral, 763 F.3d at 201, whereas
Plaintiffs in this case make no claim that any manipulative oil trading occurred in
the United States. Moreover, in Parkcentral, the equity swaps traded in the United
States were “directly tied to the price of Volkswagen’s shares on foreign
exchanges.” Here, Plaintiffs rely on an even more attenuated “ripple effects”
theory whereby (1) the alleged manipulative trading activity taking place in the
North Sea (2) affected Brent crude prices – a foreign commodity – which (3)
affected a foreign benchmark, the Dated Brent Assessment, which (4) was then
disseminated by a foreign price‐reporting agency, which (5) was then allegedly
used (in part) to price futures contracts traded on exchanges around the world.
Nearly every link in Plaintiffs’ chain of wrongdoing is entirely foreign – in contrast
to Parkcentral, where the alleged wrongdoing occurred on American shores at the
second causal step, not the fifth. And yet even in Parkcentral, we deemed the
24 conduct to be “so predominantly foreign” as to render the claims impermissibly
extraterritorial. Parkcentral, 763 F.3d at 216. The same conclusion is warranted
here. Therefore, we conclude that Plaintiffs have failed to plead a proper domestic
application of Section 22 of the CEA.
2. Sections 6(c)(1) and 9(a)(2)
Although “[Plaintiffs’] suit must satisfy the threshold requirement of CEA
Section 22 before reaching the merits of [their] Section [6(c)(1) and 9(a)(2)] fraud
claim,” Loginovskaya, 764 F.3d at 272, Plaintiffs have, in any event, also failed to
plead a proper domestic application of either Section 6(c)(1) or 9(a)(2).
Section 6(c)(1), in relevant part, makes it “unlawful for any person, directly
or indirectly, to use or employ . . . in connection with any swap, or a contract of
sale of any commodity in interstate commerce, or for future delivery on or subject
to the rules of any registered entity, any manipulative or deceptive device or
contrivance.” 7 U.S.C. § 9(a)(1). Plaintiffs urge this Court to ignore the plain text
of the statute and suggest that the focus of this Section is the locus of the
transaction. Plaintiffs point to Morrison, where the Supreme Court held that
Section 10(b), which contains similar language, focused “not upon the place where
the deception originated, but upon purchases and sales of securities in the United
25 States.” Morrison, 561 U.S. at 266. But the language of Section 6(c)(1) crucially
differs from Section 10(b), as the latter prohibits “us[ing] or employ[ing], in
connection with the purchase or sale of any security registered on a national
securities exchange or any security not so registered[,] . . . any manipulative or
deceptive device,” 15 U.S.C. § 78j, while Section 6(c)(1) contains no mention of a
“national securities exchange.” Thus, there is no great significance in this case to
Morrison’s determination that Section 10(b) focused specifically on “deceptive
conduct ‘in connection with the purchase or sale of any security registered on a
national securities exchange or any security not so registered.’” Morrison, 561 U.S.
at 266 (quoting 15 U.S.C. § 78j). There is nothing in Section 6(c)(1)’s text suggesting
that it is focused on “purchases and sales of securities in the United States,”
Morrison, 561 U.S. at 266, and other available evidence in the CEA, such as that
statute’s statement of purpose, suggests that the focus is on rooting out
manipulation and ensuring market integrity – not on the geographical coordinates
of the transaction. See 7 U.S.C. § 5 (“[I]t is further the purpose of this chapter to
deter and prevent price manipulation or any other disruptions to market integrity
. . . to ensure the financial integrity of all transactions subject to this chapter.”); see
also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 33
26 (2012) (noting that a statute’s enumerated statement of purpose is relevant when
interpreting a text). Therefore, we discern that Section 6(c)(1) centers on
manipulation in commodities markets. All of the conduct relevant to that focus
occurred abroad – Defendants are alleged to have manipulated the physical Brent
crude market near Europe’s North Sea by engaging in fraud there. And if “the
relevant conduct occurred in another country, ‘then the case involves an
impermissible extraterritorial application regardless of any other conduct that
occurred in U.S. territory.’” WesternGeco, 138 S. Ct. at 2137 (quoting RJR Nabisco,
136 S. Ct. at 2101). As a result, Plaintiffs have failed to plead a proper domestic
application of Section 6(c)(1).
Plaintiffs have also failed to plead a domestic application of Section 9(a)(2).
That Section proscribes “manipulat[ing] or attempt[ing] to manipulate the price of
any commodity in interstate commerce.” 7 U.S.C. § 13(a)(2). The focus of Section
9(a)(2) is preventing manipulation of the price of any commodity. And all of the
relevant conduct here relating to that focus occurred abroad – Plaintiffs contend
that Defendants sought to manipulate the price of Brent crude, and did so by
fraudulently transacting in the physical market in Europe. Plaintiffs make no
allegation of manipulative conduct or statements made in the United States. To
27 the contrary, they expressly rely on a “ripple effect” or chain of events that
resembles a falling row of dominoes commencing in the North Sea. Accordingly,
Plaintiffs fail to plead a proper domestic application of Section 9(a)(2) as well.9
IV. CONCLUSION
We do not lightly dismiss Plaintiffs’ troubling allegations against
Defendants, which include serious claims premised on manipulation, fraud, and
deceit. Nonetheless, “the sole function of the courts is to enforce [the CEA]
according to its terms,” not to reinvent it. Arlington Cent. Sch. Dist. Bd. of Educ. v.
Murphy, 548 U.S. 291, 296 (2006). The presumption against extraterritoriality
reflects the recognition that “[a]ll legislation is prima facie territorial.” Am. Banana
Co. v. United Fruit Co., 213 U.S. 347, 357 (1909) (Holmes, J.). That presumption has
not been displaced here, and Plaintiffs have not pleaded a domestic application of
the CEA by mere dint of the fact that – after a winding chain of foreign, intervening
events – they purchased Brent Futures on exchanges. Were we to hold otherwise,
the CEA would indeed “rule the world.” Microsoft, 550 U.S. at 454.
Accordingly, the judgment of the district court is AFFIRMED.
9Because Plaintiffs have not pleaded a domestic application of either Section 6(c)(1) or 9(a)(2), we need not decide whether Parkcentral applies to those sections. 28