Second Circuit: Pleading Standard Too High in Dismissal of Silver Futures Case | Practical Law

Second Circuit: Pleading Standard Too High in Dismissal of Silver Futures Case | Practical Law

On February 1, 2017, the US Court of Appeals for the Second Circuit found that the lower court held plaintiffs to an excessively high pleading standard under Twombly in dismissing their complaint alleging that JPMorgan Chase manipulated a market for silver futures contracts.

Second Circuit: Pleading Standard Too High in Dismissal of Silver Futures Case

Practical Law Legal Update w-005-7192 (Approx. 3 pages)

Second Circuit: Pleading Standard Too High in Dismissal of Silver Futures Case

by Practical Law Antitrust
Published on 02 Feb 2017 • USA (National/Federal)
On February 1, 2017, the US Court of Appeals for the Second Circuit found that the lower court held plaintiffs to an excessively high pleading standard under Twombly in dismissing their complaint alleging that JPMorgan Chase manipulated a market for silver futures contracts.
A three-judge panel of the US Court of Appeals for the Second Circuit reinstated three complaints alleging that JPMorgan Chase & Co. rigged a market for silver futures contracts in violation of Section 2 of the Sherman Act (Wacker v. JPMorgan Chase & Co., No. 16-2482 (2d Cir. Feb. 1, 2017)). The appellate court found that, in dismissing the complaints under Bell Atlantic v. Twombly, 550 U.S. 544 (2007), the district court:
  • Demanded an excessive level of detail from the plaintiffs.
  • Engaged in impermissible fact-finding at the motion-to-dismiss stage.
The plaintiffs allege that JPMorgan overbid in the silvers futures market to make it impossible for other market participants to continue trading. The lower court had found that the plaintiffs did not sufficiently plead that the defendants intended to rig the market at the expense of their counterparties or that the defendants made uneconomic bids (see Shak v. JPMorgan Chase, (S.D.N.Y. June 29, 2016)). Specifically, the lower court found that the plaintiffs failed to allege:
  • Specific bid/asks in the allegedly rigged market.
  • The amounts of the allegedly rigged bids and offers.
  • The identity of the counterparties.
  • The amount of the profit that JPMorgan obtained from the alleged scheme.
The lower court also objected to the plaintiffs' use of the 12-month Silver Indicative Forward Mid Rates as a benchmark for determining the proper levels for the bid/ask spreads in the relevant market.
The Second Circuit found that the district court was too stringent in the level of detail it expected the plaintiffs to include in the complaint at the pleading stage. The court found that it was sufficient under Twombly for plaintiffs to show anticompetitive intent by:
  • Alleging that JPMorgan placed uneconomic bids.
  • Specifying the days on which the defendants allegedly submitted the anticompetitive bids.
The court also found that the lower court engaged in impermissible fact-finding by evaluating the plaintiffs' choice of a benchmark at the pleading stage. Assessing the relationship between a benchmark and the market it tracks required a fact-intensive inquiry that was more appropriate for later stages of the litigation.
Finally, the court upheld the district court's acceptance of the plaintiffs' proposed relevant market of long-dated silver futures contracts. The decision notes that courts should be hesitant to grant motions to dismiss for failure to plead a relevant product market, given that market definition is a fact-intensive inquiry.
For a chart of motions to dismiss in antitrust cases analyzed under Twombly in the US District Court for the Southern District of New York, see Twombly Motions to Dismiss Chart: S.D.N.Y.