Antitrust Law Daily Wrap Up, ANTITRUST—SDNY: Discovery Stayed in Cotton Futures Price Fixing Litigation, (May 9, 2013)

By Tobias J. Gillett, J.D., LL.M.

In putative class action litigation over alleged price fixing and manipulation of cotton futures contracts, the federal district court in New York City has granted a stay of discovery until resolution of the defendants’ motion to dismiss (In Re: Term Commodities Cotton Futures Litigation, May 8, 2013, Fox, K.).

Plaintiffs in a consolidated putative class action alleged that various companies and individuals violated the Commodity Exchange Act (CEA) by manipulating and artificially inflating the prices of Intercontinental Exchange Cotton No. 2 futures contracts expiring in May 2011 and July 2011, and by aiding and abetting violations of the CEA; violated Sections 1 and 2 of the Sherman Act by artificially fixing and inflating prices for the May 2011 and July 2011 contracts; and became unjustly enriched from their unlawful conduct. The defendants filed a motion to dismiss.

The plaintiffs filed a motion to compel production of certain documents previously produced to the Commodity Futures Trading Commission. The defendants filed a motion to stay discovery until a district court ruled on their motion to dismiss.

The court began its review of the motion to stay discovery by observing that it was not the same court that would decide the motion to dismiss, and "where different courts are deciding the stay motion and the motion to dismiss, it is a waste of judicial resources for the court deciding the stay motion to consider the strength of the motion to dismiss as a factor in determining the stay motion." Therefore, the court considered "the fact that the defendants filed a dispositive motion," but not the strength of the motion to dismiss.

Burden and breadth of discovery. The court proceeded to consider the breadth of discovery and the burden of producing it. The court noted that the defendants had alleged that one of the defendants had "produced over 90,000 pages of documents to the CFTC," and that review of the documents for possible "commercially sensitive material" could "take over 1000 attorney hours" and "cost at least $250,000 in attorney fees." Although the plaintiffs claimed that "only a fraction of the documents [were] at issue," the court observed that they did not specify what fraction would have to be produced. Moreover, the fact that 90,000 pages was "a small fraction of the documents in other cases" was "irrelevant" and did not "demonstrate whether 90,000 is a small fraction of the documents requested" in the present case. Therefore, the court found the amount of time and cost required to review the documents and negotiate a confidentiality order would represent a significant burden.

Prejudice from stay. In addition, the court rejected the plaintiffs’ contention that a stay of discovery could prejudice them because it could result in the expiration of the statute of limitations as to their claim of "conspiracy which was carried out by many parties, including some parties who, based on present information, are yet to be named." The court observed that the plaintiffs had alleged that the defendants’ unlawful conduct had begun in March 2011, and therefore, unless they could satisfy Federal Rule of Civil Procedure 15(c) and thus avoid any applicable statute of limitations, their claims would be outside the statute of limitations whether or not discovery was stayed.

Moreover, the possibilities that witnesses’ memories could fade and that non-parties could destroy relevant documents were "the usual litigation risks that affect all parties equally, regardless of the amount of time permitted for discovery." Therefore, the court found that the plaintiffs had failed to demonstrate that they would suffer unfair prejudice from a "short delay in discovery," given that the motion to dismiss would be argued on May 17, 2013 and that a stay "might avoid the need for costly and time-consuming discovery."

The case is No. 12 Civ. 5126 (ALC)(KNF).

Attorneys: Amanda Nicole Miller (Lovell Stewart Halebian Jacobson LLP) for Mark Allen. Bruce Edward Clark (Sullivan and Cromwell, LLP) for Term Commodities Inc.

Companies: Louis Dreyfus Commodities LLC; Term Commodities Inc.

Cases: Antitrust NewYorkNews