S.G. v. Bank of China Ltd.

Background

S.G. and M.G., proceeding on behalf of themselves and others similarly situated, alleged that they bought Crude Oil Treasure (COT) from Bank of China-affiliated defendants and were harmed. COT is a financial derivative whose value depends on West Texas Intermediate crude-oil futures contracts. The complaint alleged that the Bank of China entities misrepresented COT, mismanaged it, and misappropriated customer funds. It stated that COT customers lost more than $1.6 billion.

The complaint asserted eight causes of action. Counts One through Six were against the Bank of China Group and alleged violations of the Commodity Exchange Act, false advertising, fraud, conspiracy to defraud, breach of contract, and breach of fiduciary duty. Count Seven asserted negligence against the Bank of China Group and CME. Count Eight alleged that CME aided and abetted common-law fraud. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Claims Against Bank of China U.S.A. and BOCI Commodities & Futures (USA) LLC

The court held that the complaint failed to provide sufficient allegations specific to Bank of China U.S.A. and BOCI Commodities & Futures (USA) LLC. Instead, it generally referred to four affiliated entities as the “BOC Group.” The court said this type of group pleading did not give each defendant fair notice of the conduct attributed to it. The complaint also failed to distinguish which BOCI entity was responsible for which conduct.

For claims involving fraud, Federal Rule of Civil Procedure 9(b) requires particular details, including the allegedly fraudulent statements, who made them, where and when they were made, and why they were fraudulent. The court concluded that the complaint did not support an inference of fraud as to either Bank of China U.S.A. or BOCI Commodities & Futures (USA) LLC. It therefore held that the complaint failed to state a claim for relief against those defendants.

Claims Against CME and New York Mercantile Exchange

CME argued that it was immune from suit as a self-regulatory organization. The court agreed. It explained that a self-regulatory organization has absolute immunity when performing regulatory duties that substitute for functions otherwise performed by a government agency.

The court concluded that the complaint’s allegations concerning CME’s anti-money-laundering and customer-identification programs involved general regulatory oversight of exchange members. It also found that CME’s alleged change permitting the first negative price for an oil futures contract was closely connected to CME’s regulatory role. Those activities were therefore covered by absolute immunity. The court rejected plaintiffs’ argument that alleged bad faith defeated immunity, explaining that immunity depended on whether the conduct was part of the regulatory function, not on whether the conduct was proper.

Leave to Amend

Plaintiffs requested permission to amend if any portion of their claims was deficient. The court denied that request because plaintiffs did not explain how an amendment would cure the complaint’s numerous defects.

The court also determined that the proposed additional claims would be futile. Under the New York law discussed in the opinion, there is no claim for aiding and abetting a breach of contract. The proposed tortious-interference claim lacked allegations of intentional procurement of a third party’s breach without justification and an actual breach of contract. The proposed aiding-and-abetting breach-of-fiduciary-duty claim also lacked an underlying breach of fiduciary duty. Amendment of the claims against CME would be futile because of CME’s absolute immunity. The court separately noted that amendment of Count One, alleging a Commodity Exchange Act violation, would be futile because the claim was time-barred under the statute’s two-year limitations period.

Disposition

Judge Lewis A. Kaplan’s conclusion states that defendants’ motions to dismiss were granted and plaintiffs’ requests for leave to amend were denied. The opinion does not separately identify a distinct dismissal ground for every defendant beyond the grounds discussed above.