13-1416-cv In re: Commodity Exch., Inc. Silver Futures & Options Trading Litig.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 27th day of March, two thousand fourteen.

PRESENT: ROBERT A. KATZMANN, Chief Judge, RICHARD C. WESLEY, DENNY CHIN, Circuit Judges.

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IN RE COMMODITY EXCHANGE, INC. SILVER FUTURES AND OPTIONS TRADING LITIGATION

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BRIAN J. BEATTY, PETER LASKARIS, SILVER FUTURES, JAMES D. KENSIK, VALERIE KAM, JAMES AKERS, JOHN MURPHY, CLAL FINANCE DERIVATIVES TRADING LTD., CONNOR G. MURPHY, WILLIAM HEARN, ELEANOR CROSSWHITE, THOMAS CROSSWHITE, JEFFREY R. CURRENT, TAMARA CURRENT, ROBERT GOLTERMANN, TODD R. ILIFF, 13-1416-cv JEFFREY LEWIS, Trustee for WILLIAM O. LEWIS and JACQUELYN J. LEWIS, ARLYN JAMES MILLER, THOMAS MECKEL, LJG ASSET MANAGEMENT, INC., JOHN L. BROADWAY, III, AIS CAPITAL MANAGEMENT, LLC, AIS FUTURES MANAGEMENT, LLC, TERESA CRACRAFT, H. BRAD ANTIN, CONNIE ANTIN, ARTHUR TONELLI, NICHOLIS REPKE, on behalf of himself and all others similarly situated, Plaintiffs,

ALAN J. ANTIN, BLACKBRIAR HOLDINGS, LLC, CLAL FINANCE MUTUAL FUND MANAGEMENT, LTD., STEVEN B. CRYSTAL, Trustee for the ESTATE OF NORMAN S. CRYSTAL, CRYSTAL INVESTMENT PARTNERS LLC, CHRISTOPHER DEPAOLI, PAUL FELDMAN, GAMMA TRADERS I, LLC, REBECCA A. HOUGHER, DR. ROBERT HURT, PAUL D. KAPLAN, GORDON KOST, TERESA KUHN, SHAWN KUO, CARL F. LOEB, KEVIN J. MAHER, ERIC NALVEN, J. SCOTT NICHOLSON, ROBERT NEPO, MARLENE STULBACH, KEITH WAGNER, WAYNE W. WILLETZ, VINCENT YACAVINO, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.

JP MORGAN CHASE & CO., JP MORGAN CLEARING CORP., JP MORGAN SECURITIES INC., J.P. MORGAN FUTURES INC., JOHN DOES, 1-10, JOHN DOES, 11-20, Defendants-Appellees,

HSBC HOLDINGS PLC, HSBC SECURITIES (USA) INC., HSBC BANK USA, Defendants.

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FOR PLAINTIFFS-APPELLANTS: CHRISTOPHER LOVELL (Gary S. Jacobson, Ben Jaccarino, and Amanda N. Miller, on the brief), Lovell Stewart Halebian Jacobson LLP, New York, New York.

FOR DEFENDANTS-APPELLEES: DARYL A. LIBOW (Amanda Flug Davidoff, on the brief), Sullivan & Cromwell LLP, Washington, D.C.

2 Appeal from the United States District Court for the

Southern District of New York (Patterson, J.).

UPON DUE CONSIDERATION, IT IS ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

Plaintiffs-appellants, investors in certain silver

futures and options contracts, appeal from the district court's

March 25, 2013 judgment dismissing their consolidated class

action complaint against defendants-appellees JP Morgan Chase &

Co., JPMorgan Clearing Corp., JPMorgan Securities, Inc.,

JPMorgan Futures Inc., and unnamed John Does (collectively,

"JPMorgan"), and denying their motion to file an amended

complaint. We assume the parties' familiarity with the facts,

procedural history, and issues on appeal.

Plaintiffs assert violations of Sections 9(a) and

22(a) of the Commodity Exchange Act (the "CEA"),

(a), 25(a), and Section 1 of the Sherman Antitrust Act,

. After addressing the standard of review, we review

each claim in turn.

1. Standard of Review

We review the district court's grant of a motion to

dismiss de novo, "accepting as true the complaint's factual

assertions and drawing all reasonable inferences in the

plaintiff's favor. To survive a motion to dismiss, a complaint

must contain sufficient factual matter, accepted as true, to

3 state a claim to relief that is plausible on its face." N.Y.

Life Ins. Co. v. United States,

(2d Cir. 2013)

(internal citations and quotation marks omitted).

We review a district court's ruling on a motion for

leave to file an amended complaint for abuse of discretion.

See, e.g., McCarthy v. Dun & Bradstreet Corp.,

(2d Cir. 2007). Leave to amend is routinely denied where

amending the complaint would be futile. Id.; Hayden v. Cnty. of

Nassau,

(2d Cir. 1999) ("[W]here the plaintiff

is unable to demonstrate that he would be able to amend his

complaint in a manner which would survive dismissal, opportunity

to replead is rightfully denied.").

The parties disagree as to whether a claim under the

CEA is subject to the pleading standard of Rule 8(a) or 9(b) of

the Federal Rules of Civil Procedure. We do not reach this

issue, however, because we hold, as discussed below, that

plaintiffs' claims fail even under the more liberal standard of

Rule 8(a).

2. The CEA

The CEA prohibits any person from "manipulat[ing] or

attempt[ing] to manipulate the price of any commodity."

(a)(2). "While the CEA itself does not define the

term, a court will find manipulation where (1) Defendants

possessed an ability to influence market prices; (2) an

4 artificial price existed; (3) Defendants caused the artificial

prices; and (4) Defendants specifically intended to cause the

artificial price." In re Amaranth Natural Gas Commodities

Litig.,

(2d Cir. 2013) (internal quotation

marks omitted).

At a minimum, here plaintiffs failed to adequately

plead facts to support the third and fourth factors, and the

allegations in their proposed amended complaint did not cure

these deficiencies. As discussed below, plaintiffs' assertions

relating to JPMorgan's market power and "uneconomic conduct"

were insufficient to plausibly allege intent or causation.

Plaintiffs' proposed amended complaint contained no additional

allegations to support these elements. Accordingly, the

district court did not err in dismissing the complaint, nor did

it abuse its discretion in denying leave to amend. See

("There is . . . no manipulation without intent to cause

artificial prices.").

First, market power by itself is not enough to

establish a CEA violation. Plaintiffs suggest that JPMorgan's

large short position in silver futures incentivized JPMorgan to

depress prices. But this "incentive" could just as easily be

imputed to any company with a large market presence in any

commodity market. See

(noting that while "[a] trader

may indeed acquire a large position in order to manipulate

5 prices," it "may also acquire a large position in the belief

that the price of the future will, for reasons other than the

traders' own activity, move in a favorable direction"). We

agree with the district court that an inference of intent cannot

be drawn from the mere fact that JPMorgan had a strong short

position.

Second, plaintiffs' vague allegations of purportedly

"uneconomic conduct" likewise failed to state a CEA claim.

Plaintiffs argue that JPMorgan's trading behavior was

"inconsistent with trying to obtain the best sales price

execution, but consistent with trying to move prices down by

aggressively selling in a compressed period to receive less on

the sales transactions." (Am. Compl. ¶ 121). Absent specific

factual allegations, however, this argument does not support an

inference of intent. See U.S. Commodity Futures Trading Comm'n

v. Parnon Energy Inc.,

(S.D.N.Y. 2012)

(noting that plaintiff must allege that defendant "acted (or

failed to act) with the purpose or conscious object of causing

or [a]ffecting a price or price trend in the market that did not

reflect the legitimate forces of supply and demand" (internal

quotation marks omitted) (emphasis added)).

Nor did plaintiffs allege any specific facts

indicative of an intent to affect prices similar to those that

have been found sufficient in comparable CEA actions. See,

6 e.g., CFTC v. Amaranth Advisors L.L.C.,

(S.D.N.Y. 2008) (alleging specific instant message

conversations that showed that a trader at Amaranth intended to

affect prices); In re Natural Gas Commodity Litig.,

, 344 (S.D.N.Y. 2005) (alleging that the defendants

reported "false pricing data to various market indices").

As plaintiffs failed to allege a CEA violation, their

aiding and abetting claim was properly dismissed as well. See

Amaranth,

("[A]iding and abetting requires

knowledge of the primary violation and an intent to assist

it . . . ." (emphasis added)); Tatum v. Legg Mason Wood Walker,

Inc.,

, 123 n.3 (5th Cir. 1996) (per curiam) ("[T]o

recover damages from a secondary party in an action for 'aiding

and abetting' liability under the [CEA], a plaintiff must first

prove that a primary party committed a commodities violation.").

3. Sherman Anti-Trust Act

Section 1 of the Sherman Antitrust Act provides that

"[e]very contract, combination . . . or conspiracy, in restraint

of trade or commerce . . . is declared to be illegal."

. To state a claim under Section 1, a plaintiff must

plausibly allege that "the challenged anticompetitive conduct

stems . . . from an agreement, tacit or express." Bell Atl.

Corp. v. Twombly,

(2007) (internal quotation

marks and alteration omitted). "While a showing of parallel

7 business behavior is admissible circumstantial evidence from

which the fact finder may infer agreement, it falls short of

conclusively establishing agreement or itself constituting a

Sherman Act offense."

(internal quotation marks and

alterations omitted).

Plaintiffs failed to plausibly allege even a tacit

agreement to manipulate prices. Rather, plaintiffs argued that

its allegations of large volume uneconomic trades in a

compressed period and price signaling plausibly alleged

concerted action by JPMorgan and unidentified floor brokers.

Again, these conclusory allegations did not identify any

concerted action among the defendants. Moreover, for the

reasons discussed above, these allegations were insufficient to

plead a claim that defendants unreasonably acted to restrain

trade. Accordingly, the district court did not err in

dismissing the Sherman Act claim, and it did not abuse its

discretion in denying plaintiffs leave to replead.

We have considered appellants' remaining arguments and

conclude they are without merit. For the foregoing reasons, we

AFFIRM the judgment of the district court.

FOR THE COURT: Catherine O'Hagan Wolfe, Clerk

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