PAYNE, District Judge.
This matter comes before the Court on Defendant Robert Martin's Motion to Dismiss and Brief in Support (Docket No. 23), Defendant Jeffery A. Bradley's Motion to Dismiss (Docket No. 24), and Defendant Jeffery A. Bradley's Brief in Support of Motion to Dismiss (Docket No. 25), all filed April 7, 2005.
The Commission alleges that from at least January 2001 through at least October 2002, Defendants engaged in practices that constitute violations of the Commodity Exchange Act (the "CEA"), codified at 7 U.S.C. § 1 et seq. During the relevant time period, both Defendants were employed by CMS Field Services, Inc. ("Field Services"), which was operating as a subsidiary of CMS Energy Corporation.
Reporting firms, such as Gas Daily, Inside FERC, and Natural Gas Intelligence ("NGI") publish natural gas price indices using natural gas transaction information, including volume, price, and delivery point/pricing location. The reporting firms obtain the information they use to calculate the indices from reports submitted by market participants, such as Defendant Bradley. The data supplied to the reporting firms are derived from actual, fixed-price, natural gas trades executed by the traders. The indices produced by the reporting firms are widely used by market participants throughout the industry for the pricing of natural gas transactions.
During the relevant period, Defendant Bradley was a manager of marketing for Field Services. In this capacity, he operated out of Tulsa, Oklahoma, and traded natural gas for Field Services. Defendant Bradley also submitted, or caused to be submitted, reports concerning natural gas transactions to several reporting firms that compiled natural gas price indexes, including Gas Daily, Btu Daily, and NGI. (See Compl. at 5, ¶ 23.) Defendant Martin was a director of gas supply for Field Services, and also operated out of Tulsa, Oklahoma. As director of gas supply, he managed contracts under which producers supplied natural gas to Field Services.
The Commission alleges that throughout the relevant period, Defendant Bradley knowingly submitted false, misleading or knowingly inaccurate natural gas transaction information to the reporting firms.
As to Defendant Martin, the Commission alleges that on at least one occasion, he aided and abetted Defendant Bradley in reporting false information to the reporting firms. In support of this contention, the Commission sets forth the following telephone conversation between Defendants Bradley and Martin:
(Compl. at 10, ¶¶ 46, 47.) The Commission asserts that this conversation evidences a conspiracy on the part of the Defendants to provide false, misleading, or knowingly inaccurate information "concerning purported Field Services natural gas transactions on the pipeline point known as NNTOK in an attempt to manipulate the price of natural gas." (Id. at 10, ¶ 44.) The Commission also alleges that "Bradley and Martin fabricated the transaction information alleged above for the specific purpose of manipulating the index price for natural gas at NNTOK." (Id. at 11, ¶ 49.)
In Count I of the Complaint, the Commission alleges that Defendant Bradley violated § 9(a)(2) of the CEA, codified at 7
A motion to dismiss is properly granted when it appears beyond doubt that the plaintiff could prove no set of facts entitling it to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Ramirez v. Department of Corrections, 222 F.3d 1238, 1240 (10th Cir.2000). For purposes of making this determination, a court must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff. Id. at 1240. However, the Court need not accept as true those allegations that are conclusory in nature. Erikson v. Pawnee County Board of County Commissioners, 263 F.3d 1151, 1154-55 (10th Cir.2001) (citations omitted). "The issue is not whether the plaintiff will ultimately prevail, but whether it is entitled to offer evidence to support its claims." Cooper Mfg. Corp. v. Home Indem. Co., 131 F.Supp.2d 1230, 1232 (N.D.Okla.2001).
In the instant case, Defendants argue that the Complaint must be dismissed for the following reasons: (1) their activities are exempt from the CEA pursuant to 7 U.S.C. §§ 2(g) and 2(h); (2) Plaintiff has failed to state a claim under Fed.R.Civ.P. 12(b)(6); (3) Plaintiff has failed to plead fraud with specificity under Fed.R.Civ.P. 9(b); and (4) Plaintiff has failed adequately to support its requests for relief. The Court will address each of Defendants' arguments in turn.
Defendants first argue that, pursuant to 7 U.S.C. §§ 2(g) and 2(h), their allegedly illegal activities regarding the submission of reports about natural gas transactions are excluded from regulation under the CEA. The Court does not agree.
Section § 2(g) provides that the CEA shall not:
7 U.S.C. § 2(g) (emphasis added). Section 2(h) provides that "nothing in this Act shall apply to a
As an initial matter, the Court notes that because they are claiming entitlement to a statutory exemption, the burden rests on the Defendants to show that they are entitled to the benefit of the exemption. See FTC v. Morton Salt, 334 U.S. 37, 44-45, 68 S.Ct. 822, 92 L.Ed. 1196 (1948). The provisions cited by Defendants do not state that the CEA does not apply to any conduct or activity
In the instant case, the Commission has alleged that Defendants' reporting activities violated the CEA. As noted by the Commission, "Defendants' reporting activities do not fall within the definitions of a contract, transaction, or agreement, and thus are not subject to Sections 2(g) and 2(h)." (Pl.'s Resp. to Defs.' Mots. to Dismiss at 10.) Defendants offer no authority for the proposition that the §§ 2(g) and 2(h) exemptions should be interpreted to include any conduct related to an exempt contract, and the Court finds that the proposition is without merit. Accordingly, because the exemptions found in §§ 2(g) and 2(h) do not apply to Defendants' reporting activities, which are the subject of the Complaint, the Court finds that dismissal of the Complaint on this ground is not warranted.
Defendants present several arguments in support of their contention that the Complaint fails under Fed.R.Civ.P. 12(b)(6). Defendant Bradley presents an argument in which Defendant Martin joins, and Defendant Martin presents several additional arguments on his own behalf. The Court will address each argument in turn.
Count II of the Complaint alleges that Defendants knowingly delivered false or misleading or knowingly inaccurate reports regarding natural gas transactions "in an attempt to manipulate the price of natural gas." (Compl. at 13, ¶ 60.) Defendants argue that an allegation of attempted manipulation requires a showing of specific intent, and that Plaintiff has failed to allege specific intent on the part of Defendants in the Complaint. Therefore, Defendants
An attempted manipulation "requires only an intent to affect the market price of a commodity and some overt act in furtherance of that intent." Hohenberg Bros., CFTC Docket No. 75-4, 1977 WL 13562 (CFTC Feb. 18, 1977) at *7. In the Complaint, the Commission alleges that "Bradley and Martin fabricated the transaction information alleged above for the specific purpose of manipulating the index price for natural gas at NNTOK," (Compl. at 11, ¶ 49), and alleges that Defendants engaged in overt acts in furtherance of this intent. It is undisputed that natural gas constitutes a "commodity" under the CEA. Thus, the elements of attempted manipulation appear to have been alleged by the Commission in the Complaint. Defendants argue, however, that the above-quoted allegation is merely an unsupported legal conclusion, and is therefore insufficient to avoid dismissal of Count II.
It is well-settled that "[m]alice, intent, knowledge, and other conditions of mind of a person may be averred generally." Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997) (quoting Fed.R.Civ.P. 9(b)) (internal quotation omitted); see also Phelps v. Wichita Eagle-Beacon, 886 F.2d 1262, 1270 n. 5 (10th Cir.1989) (noting that Rule 9(b) fraud pleading requirements inform other pleading requirements when intent is an element of a claim). Here, the Commission has alleged that Defendants intended to manipulate the market, and has further alleged the circumstances surrounding the attempted manipulation, which tend to show an intent to manipulate the market.
Based on the above reasoning, the Court finds that the Commission has not failed to adequately allege attempted manipulation with regard to Count II of the Complaint, and therefore dismissal of Count II is not warranted under Rule 12(b)(6).
Count I of the Complaint alleges that Defendant Martin aided and abetted Defendant Bradley in knowingly delivering or causing to be delivered false, misleading or knowingly inaccurate reports concerning
First, the Court finds that the Complaint does allege that Defendant Martin provided information concerning natural gas transactions. Beyond the bare allegations in the Complaint, the Complaint sets forth a conversation between the Defendants concerning the price of natural gas on the NNTOK. (See Compl. at 10, ¶¶ 46, 47.) In that conversation, Defendant Martin specifically references natural gas contracts in which Field Services is involved when he states, "No, we're still TOK-tied on a zillion contracts." He then provides price information concerning those contracts, which involve natural gas transactions. Accordingly, the Court finds that the Complaint does sufficiently allege that Defendant Martin provided information concerning natural gas contracts.
Second, the Court finds that the Complaint sufficiently alleges that the information provided by Defendant Martin was false, misleading, or knowingly inaccurate. Again, the Complaint contains express allegations to that effect. Moreover, the conversation between the Defendants, set forth in the Complaint, indicates that Defendant Martin actively participated in providing false, misleading, or knowingly inaccurate information concerning natural gas transactions to the reporting firms. Defendant Martin attempts to characterize his role in the conversation as merely responding to a request for "any indication" of the price of gas in the NNTOK. (See Def. Martin's Mot. to Dismiss at 6.) However, this characterization is disingenuous, at best. Defendant Martin's account of the conversation fails to include the statements made immediately prior to his "estimation" of the NNTOK price. Specifically, before asking Defendant Martin how far behind Demarc he would put the NNTOK price, Defendant Bradley asked Martin if he had an agenda regarding NNTOK prices. When Defendant Martin responded that he was "TOK-tied on a zillion contracts," Defendant Bradley said, "Well, let's make up some numbers and turn them in, then." (Compl. at 10, ¶ 46.) Defendant Bradley then stated, "You want them low, though," apparently referring to the price for NNTOK gas. (Id. at ¶ 47.) It was at this point that Defendant Bradley requested, and Defendant Martin provided, how far behind Demarc Martin would put the NNTOK price. Taking this conversation as a whole, it appears that Defendant Martin provided his "estimation" of how far back of Demarc he would put the NNTOK price in response to Defendant Bradley's suggestion that they "make up some numbers and turn them in" to the reporting firms. Accordingly, the Court finds that the Complaint sufficiently alleges that the information provided by Defendant Martin to the reporting firms was false, misleading, or knowingly inaccurate.
Third, the Court finds that the Complaint sufficiently alleges that the information Defendant Martin provided affected or tended to affect the price of natural gas. In a case cited by Defendants, the Commission held that "because market participants use natural gas price indexes in the natural gas . . . markets, the price and volume data reported by natural gas traders to reporting firms is market information that affects or tends to affect the price of natural gas in interstate commerce." Coral Energy Resources, L.P., CFTC
Based on the above reasoning, the Court finds that the Commission has not failed to state a claim upon which relief may be granted, and therefore dismissal of Count I is not warranted pursuant to Fed. R.Civ.P. 12(b)(6).
Defendants contend that the Complaint should be dismissed pursuant to Fed.R.Civ.P. 9(b) because it fails to plead fraud with particularity. The Commission counters that Rule 9(b) does not apply to the charges of false reporting and manipulation made against the Defendants in the instant case, and that, even if the rule did apply, the allegations in the Complaint are sufficient to overcome dismissal on this ground. In the instant case, Defendants have supplied no authority for the proposition that Rule 9(b) applies to claims brought under 7 U.S.C. § 13(a)(2), such as the false reporting claims alleged in Count I of the instant Complaint, and the Court finds that this proposition is without merit.
Rule 9(b) provides, "In all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed.R.Civ.P. 9(b). "To satisfy Rule 9(b), a market manipulation claim must specify what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed, and what effect the scheme had on the market for the securities at issue."
In the instant case, Plaintiff need not allege the effect Defendants' scheme had on the market, because it is alleging attempted manipulation, rather than actual manipulation. With regard to the remaining elements, the Court finds that they
Finally, Defendants argue that the Court should dismiss the Commission's requests for relief because its requests are not supported by the allegations in the Complaint. The Court finds that this argument is without merit.
Cassidy v. Millers Cas. Ins. Co. of Texas, 1 F.Supp.2d 1200, 1214 (D.Colo.1998). In the instant case, the Court finds that the claims as stated would entitle the Commission to relief. Therefore, dismissal of the Commission's requests for relief is not warranted.