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New York District Court Allows Monopolization Claims Alleging Manipulation of Electricity Prices to Proceed Against Barclays

Last week, Judge Victor Marrero of the U.S. District Court for the Southern District of New York partially granted Barclays PLC’s motion to dismiss antitrust and unfair enrichment claims brought against it by Merced Irrigation District.  Merced, which generates, distributes, purchases, and sells electricity in and around Merced County, California, filed a proposed class action against Barclays in June 2015, relying on an April 2012 report from the Federal Energy Regulatory Commission.  FERC concluded that Barclays violated the commission’s ban on energy market manipulation by conspiring with four commodities traders to manipulate the daily price index in Western U.S. markets in order to benefit Barclays swap contracts.  As a result, FERC ordered Barclays to pay a $453 million fine and to disgorge $35 million in unjust profits, which Barclays is currently appealing.

In its complaint, Merced alleged it was harmed by the misconduct identified in the FERC report because it bought peak electricity from another California district at supracompetitive prices during the time period Barclays manipulated electricity prices.  Merced brought claims pursuant to Sections 1 and 2 of the Sherman Act for restraint of trade and monopolization, respectively, and the California Unfair Competition Law as well as claims of unjust enrichment.  Barclays subsequently moved to dismiss, arguing that: (1) Merced lacks antitrust standing because any antitrust injury is too remote given that Merced has not alleged it entered into any transaction with Barclays and Merced and Barclays are traded on different indices; (2) Merced’s claims are barred by the Sherman Act’s four-year statute of limitations and the relevant state law statutes of limitations because the alleged manipulation occurred between November 2006 and December 2008; (3) Merced failed to state a claim for federal antitrust violations because it did not allege in its complaint that Barclays either acted in concert with another party to restrain trade of electricity-related products or possessed monopoly power in a relevant market or excluded competitors; and (4) Merced failed to state a claim for unjust enrichment because it did not plead a contractual or quasi-contractual relationship with Barclays.

The court concluded that Merced adequately pled antitrust standing because the antitrust injury it contends it suffered was not dependent on being a counterparty to any of Barclays’ trades.  Rather, the court found it was sufficient for Merced to allege that, as an electricity distributor, it was obligated to purchase electricity at the daily rates to fulfill its contracts, and those daily rates were manipulated by Barclays trading at non-market prices rather than by supply and demand.  The court also found the fact that Merced and Barclays traded on different indices was irrelevant to the issue of antitrust standing because Merced was able to show that the two indices moved in lockstep with one another.

The court next determined it could not find that Merced’s claims were time-barred on a motion to dismiss because Merced adequately pled that Barclays’ fraudulent concealment tolled the statute of limitations on all claims until Merced discovered the fraud upon publication of FERC’s report.  Turning to the substance of Merced’s claims, the court found Merced’s allegations of a series of contracts between Barclays and unidentified counterparties in the service of Barclays’ alleged unilateral scheme did not amount to an agreement or concerted effort in restraint of trade and dismissed Merced’s Section 1 claim.  The court concluded that Merced alleged nothing more than agreements between parties acting independently to buy and sell energy and not a “meeting of the minds” required by Section 1, even if Barclays was operating with anticompetitive intent.  The court also dismissed Merced’s claim for unjust enrichment because Merced failed to allege any relationship or evidence of direct dealing with Barclays as required by New York law.  However, Judge Marrero allowed Merced’s Section 2 claims of monopolization and attempted monopolization of electricity prices to proceed based on allegations of direct evidence, including communications from Barclays’ traders showing intent to use monopoly power to manipulate prices and Barclays demonstrated “ability to distort ordinary forces of supply and demand in setting the Daily Index Prices” through commodities trading.  Merced’s CUCL claim was also allowed to proceed based on these allegations.

We’ll continue to monitor further developments in this case.