In a new article published in the American Bar Association’s (ABA) Transportation and Energy Industries Digest, Brattle economists Shaun Ledgerwood and Jeremy Verlinda review two recent energy-related manipulation cases where the plaintiffs claimed antitrust harms, but received very different outcomes following Motions to Dismiss. The authors note that the rulings in these two cases contribute to a nascent but growing case law on the reach of antitrust laws with regard to market manipulation.
In the first case, In re: North Sea Brent Crude Oil Futures Litigation (“Brent”), two separate sets of plaintiffs alleged that Brent crude oil producers, traders, and affiliates conspired to manipulate exchange prices for Brent crude oil and its futures and derivatives contracts. The defendants filed motions to dismiss based principally on issues of antitrust standing. Although the plaintiffs alleged a market that encompassed both physical trades and the NYMEX/ICE futures and derivatives, the court concluded that plaintiffs do not have antitrust standing because they participate neither in the direct market where the alleged manipulation occurred nor in a market that is “inextricably intertwined” with the physical market where the alleged manipulation occurred.
In Merced Irrigation Dist. v. Barclays Bank PLC (“Merced”), Merced Irrigation District (MID) brought antitrust claims against Barclays Bank, PLC and four traders for the alleged manipulation of price indices at four western power trading hubs over the period November 1, 2006 through December 31, 2008. The court dismissed the Sherman Act Section 1 claims, but the Sherman Act Section 2 claims were allowed to proceed due to facts alleging direct evidence of Barclays’ unilateral exercise of market power “to distort ordinary forces of supply and demand[…] through uneconomical physical trading positions[.]”
Because none of the claims filed to date have been fully litigated, Drs. Ledgerwood and Verlinda argue that it remains unclear as to whether the transient market distortions typical of manipulative acts give rise to an actionable antitrust injury, with or without the presence of collusive behavior. The authors note that this uncertainty raises several economic questions that could help to determine the applicability of antitrust law to remedy injuries arising from market manipulation.