In Re: Term Commodities Cotton Futures Litigation

Background

Mark Allen and Brian Ledwith brought a proposed class action for traders who lost money when cotton futures prices rose unexpectedly in 2011. They alleged that Louis Dreyfus Commodities B.V., Louis Dreyfus Commodities Cotton LLC (also known as Allenberg Cotton Company), LDC Holdings Inc., Term Commodities, Inc., Louis Dreyfus Commodities LLC, and Joseph Nicosia manipulated the cotton futures market by demanding delivery of unusually large amounts of certificated cotton while engaging in other conduct that reduced available supplies. The alleged conduct involved the May and July 2011 Cotton No. 2 futures contracts.

The proposed class covered people and entities that, during specified periods, bought May or July 2011 contracts to liquidate short positions or entered into cotton-on-call contracts whose prices were set using those futures contracts. The proposed class excluded the defendants, their related entities and personnel, and alleged co-conspirators.

Class-certification ruling

The court applied Federal Rule of Civil Procedure 23. It found that the plaintiffs sufficiently showed numerosity because 96 large traders held contracts during the proposed class period and large traders were only a portion of all traders. The court also found common questions and predominance because the alleged market squeeze involved a common course of conduct affecting traders in the May and July contracts. It concluded that differences among traders, including whether they were long traders, short traders, or hedgers, and possible individualized damages did not defeat certification at this stage.

The court rejected the defendants’ argument that large traders created individualized issues concerning delivery of physical cotton. It stated that those issues involved proximate cause and were appropriate for determination by the fact-finder at trial. The court also rejected arguments that Allen’s potential defenses, including matters related to an ICE investigation and alleged use of documents from his former employer, made him atypical or inadequate. The court found Allen to be an adequate representative.

The court reached a different conclusion about Ledwith. It found him inadequate because he did not know the plaintiffs’ expert’s name or report, was unfamiliar with prior briefing and court opinions, had reviewed few case documents, and appeared uncertain about important aspects of the action. Despite that finding, the court granted the plaintiffs’ motion for class certification. The court also found the class sufficiently ascertainable because membership could be determined using objective criteria, including sworn statements and trading records. It found a class action superior to other methods and noted that the class could later be decertified if the Rule 23 requirements were not met.

Motions to seal

The parties sought to seal or redact materials concerning defendants’ trading strategies and positions, profits and losses, physical-cotton contracts, customer information, individual employment information, and information designated confidential by third parties. The court explained that judicial documents generally carry a presumption of public access and may be sealed only when specific findings show that sealing is necessary to protect a higher value and is narrowly tailored.

The court found several proposed redactions too broad. It directed that some passages be left unredacted because they contained publicly available information, expert hypotheticals or opinions, information already disclosed in other filings or an earlier opinion, or summaries of case facts and arguments rather than confidential business information. It allowed redactions to be limited to actual confidential data, including certain data obtained from third parties.

Disposition

The court granted the plaintiffs’ motion for class certification. It granted in part and denied in part the parties’ motions to seal identified as ECF Nos. 592, 597, and 607, ordered the parties to file redacted versions within 30 days, and reserved the right to request additional briefing about continued sealing. The opinion’s footnote states that the plaintiffs’ sealing motion at ECF No. 605 was denied as moot because corrected filings and an additional sealing motion were later submitted. The clerk was directed to terminate ECF Nos. 592, 595, 597, 605, and 607.