In re N. Sea Brent Crude Oil Futures Litig.

In re: NORTH SEA BRENT CRUDE OIL FUTURES LITIGATION

This document applies to: ALL CASES

1:13-md-02475 (ALC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 29, 2016

OPINION AND ORDER DISMISSING CLAIMS AGAINST DEFENDANT STATOIL ASA

ANDREW L. CARTER, JR., United States District Judge:

A putative class of futures and derivatives traders ("Trader Plaintiffs") and a putative class of the owners of landholding and lease-holding interests in United States oil-producing property ("Landowner Plaintiff") bring suit against a number of producers and traders of Brent North Sea crude oil and selected affiliates. Plaintiffs allege that Defendants conspired to intentionally manipulate Brent crude oil prices and the prices of Brent crude oil futures contracts traded on the New York Mercantile Exchange ("NYMEX") and on the Intercontinental Exchange ("ICE"), in violation of the Commodity Exchange Act, the Sherman Act, and the laws of various states.

Among the defendants are Statoil ASA and Statoil U.S. Holdings Inc. ("Statoil U.S.") (collectively, the "Statoil Defendants"). Statoil ASA is an oil and gas company, two-thirds held by the Government of Norway. The Statoil Defendants now move to dismiss, asserting, among other grounds, that the Court lacks subject-matter jurisdiction over Statoil ASA under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1330, 1602-1611. For the reasons set forth below, the Court finds that it does not have subject-matter jurisdiction over the claims against Statoil ASA.

BACKGROUND

I. Factual Background

As relevant to the Statoil Defendants, the alleged facts are as follows:

a. Brent Crude Oil

Plaintiffs allege that the Statoil Defendants, along with other producers and traders of Brent North Sea crude oil and selected affiliates, monopolized the Brent crude oil market and entered into unlawful agreements and conspiracies to fix and restrain trade in and intentionally manipulate Brent crude oil prices and the prices of Brent crude oil futures and derivatives contracts. (Traders' Second Amended Compl. ("SAC"), ECF No. 308, ¶ 2.)¹

The Trader Plaintiffs are individuals and entities who trade Brent futures and derivatives contracts on NYMEX and ICE in the United States. (SAC ¶¶ 24-34.) The Landowner Plaintiff is a Louisiana resident who is a landowner and/or leaseholder of oil-producing lands, as well as the owner of multiple royalty and working interests in oil leases in the State of Louisiana. (Landowner's Second Amended Compl. ("Landowner SAC"), Landowner ECF No. 96, ¶ 10.) Statoil ASA is a Norwegian oil company that engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products. (SAC ¶ 40.) It is headquartered in Norway but also maintains offices in the United States, including in Connecticut, Texas, and Washington D.C. (Id.) Statoil US Holdings Inc. is a Delaware corporation responsible for trading Brent crude oil to North American markets. (Id. ¶ 42.)

Brent crude oil is a variety of crude oil pulled from the North Sea region of Europe. (SAC ¶ 4.) It is shipped into the United States by a number of companies, including the StatoilDefendants. (SAC ¶ 477, Landowner SAC ¶ 53.) Brent crude oil serves as a benchmark for two-thirds of the world's internationally traded crude oil supplies. (SAC ¶ 4.) This benchmarking function is facilitated by Platts, a London-based division of New York-based McGraw Hill Financial. (SAC ¶ 4.) The Brent crude oil physical market primarily consists of private ("over-the-counter" or "OTC") trades in cargoes of crude oil in the North Sea. (Id. ¶¶ 77, 85.) Because the trades are based on OTC contracts, oil prices are not directly visible to the public; instead, Platts and other price-reporting agencies collect information on transactions from market participants and report them. (Id. ¶ 85.)

Platts reports prices for various submarkets in the Brent crude oil market, but the primary benchmark for Brent crude oil is "Dated Brent," physical cargoes of crude oil in the North Sea that have been assigned specific delivery dates. (SAC ¶¶ 88-89.) To assess pricing for Dated Brent, Platts uses the so-called Market-On-Close ("MOC") methodology. (Id. ¶ 92.) This methodology limits the analysis of market-pricing data to transactions that occur during a half-hour window at the end of the trading day (4:00 p.m. to 4:30 p.m. London time). (Id.) Platts collects trade information from this time and, in order to accurately capture the price of oil closest to the market, "carefully analyses transactional data to determine its fitness for an assessment of market value" before publishing it. (Id. ¶ 99.) "Platts applies judgment to the data it gathers, but that judgment is tied strictly to the underlying market." (Id. ¶¶ 99; 102-120 (describing factors and data considered in assessment process).)

Plaintiffs contend that Platts's and other price-reporting agencies' pricing assessments "are directly linked" to Brent crude oil futures and other derivative contract prices, as futures and exchange-based derivatives traders rely on prices published by Platts. (SAC ¶¶ 125-26.) Plaintiffs focus specifically on futures and derivatives trading on NYMEX and ICE Futures. (Id.¶ 2). NYMEX is a U.S.-based physical commodity futures exchange (Id. ¶ 133) and ICE Futures is a "purely electronic" derivatives exchange owned by the Intercontinental Exchange Group, Inc., a Delaware corporation. (Id. ¶ 137.) NYMEX Brent Futures settle to ICE Brent futures. (Id. ¶ 123.) Plaintiffs allege a correlation of 85 percent or more between Platts's Dated Brent prices and ICE Brent Crude Oil futures (Id. ¶ 129.)

b. Alleged Manipulations

Plaintiffs allege that the Statoil Defendants conspired with other Defendants to manipulate the Brent crude oil market by engaging in manipulative and fraudulent physical trades and deliberately and systematically submitting information about those trades to Platts. (SAC ¶ 224.) This also served to manipulate the prices of Brent crude oil futures and derivatives contracts. (Id.) Generally speaking, Plaintiffs allege that the Statoil Defendants, along with other Defendants, "selectively reported bids, offers, 'spoof' orders and transactions with aberrant pricing" and engaged in "prohibited wash sale transactions" during the MOC window. (Id. ¶ 8.) Plaintiffs nowhere allege that Statoil engaged in manipulative futures trading on NYMEX or ICE Futures; rather, they allege that the manipulation of the Platts Brent crude oil benchmarks, through manipulative physical trades and reporting, "has effects that ripple throughout the Brent Crude Oil and futures market, impacting a wide variety of derivative and futures contracts on NYMEX and ICE." (Id. ¶ 126.)

Plaintiffs allege specific incidents of manipulation involving the Statoil Defendants. First, Plaintiffs allege that in June 2010, Statoil ASA bought a cargo from Shell International Trading and Shipping Co. ("STASCO"); sold four cargoes but did not report the sale of one of the cargoes to Platts, placed orders for a certain grade of Brent with no effect on Platts pricing; sold a cargo to STASCO and tried to sell other cargoes at the same time; and purchased OTCderivatives contracts. (SAC ¶¶ 254-77.) Plaintiffs allege that through this course of action, Statoil ASA and other companies "managed to achieve strong market effects in both the Platts MOC and in the futures trading coincident to the Platts MOC" by selling physical grades at improving differentials and hedging those sales with long positions. (Id. ¶ 265.) In this period, Plaintiffs allege, Statoil ASA engaged in collusive trading such as wash trades. (Id. ¶ 265.)

Second, Plaintiffs allege manipulative actions by the Statoil Defendants in January 2011. Plaintiffs allege that Statoil ASA participated in an Exchange for Physical or "EFP" transaction, in which physical oil is traded for an on-exchange contract position, "in a manner designed to inflate the Dated Brent and ICE Brent futures." (SAC ¶ 289.) However, "Platts makes no mention of these EFP trades in that day's MOC narrative recap." (Id. ¶ 290.) Plaintiffs allege that later the same month, Statoil ASA purchased three total cargoes and accumulated "large long positions in the physical [Brent] market" and the MOC market "became no more than a forum for a very few companies to participate in price manipulation while rotating physical cargoes through the MOC." (Id. ¶¶ 307-09, 317.) In this same month, Platts "noted a new Statoil internal directive to curtail the use of Yahoo! Instant Messenger in its daily activities," and further noted "that trading activity at this time was marked by a lack of the essential components of transparency and discovery."² (Id. ¶ 318.)

Third, Plaintiffs allege that in September 2012, Statoil ASA and STASCO booked two Very Large Crude Carriers ("VLLCs," oil tankers capable of transporting between one and two million barrels of crude oil), purportedly to transport Brent Crude Oil to the Far East and Korea, but in fact to add upward pressure to market prices. (SAC ¶¶ 391-95, 411-16.)

In sum, the Trader Plaintiffs allege that the Statoil Defendants' manipulations deprived them of trading in a lawful, market for Brent crude oil futures and derivatives contracts and that they were injured in their businesses and property. (SAC ¶ 3). They bring claims, on behalf of themselves and other similarly situated, under the Commodity Exchange Act, the Sherman Act, and common law. (Id. ¶ 2.). The Landowner Plaintiff alleges that the restraint in trade and intentional manipulation of Brent crude oil prices caused the suppression of prices in connected U.S. markets for other varieties of crude oil, and that as a result of the suppression of prices in those markets, the Landowner Plaintiff received reduced compensation from the sale of oil extracted from his leased and owned property, from the sale of interests in oil production, and from the sale...