A second plaintiff has filed suit against Louis Dreyfus in a federal court in New York, alleging – as did the one filed last week by former Glencore Senior Trader Mark Allen – that the commodities trading house manipulated cotton prices last year.
Opinions vary in the industry about Louis Dreyfus’s actions between May and July 2011. During that time period, Dreyfus took delivery of the majority of its ICE futures contracts at expiration. The allegations claim that cotton was trading at a lower price on the spot market, but Dreyfus declined to buy it.
Some say that Dreyfus followed the law and was well within its rights to take advantage of a situation that bolstered its competitive position. Others believe the commodities giant unfairly and illegally used its position to artificially inflate prices, further damaging already-struggling spinning mills, which subsequently were forced to pay higher prices for their raw material.
The second suit was filed by Robert Walford, a New York resident being represented by the securities litigation specialist law firm of Grant & Eisenhofer. It is not uncommon for multiple suits to be filed when there are allegations of financial market violations, but that is not the same thing as a class-action lawsuit. To streamline the process and reduce the strain on an already-overburdened legal system, federal judges often transfer cases to one judge to consolidate pre-trial discovery and proceedings, according to Larry Bodine, editor-in-chief of the legal website, www.lawyers.com.
“Judges can, when there are similar claims against a particular defendant, consolidate them using what is known as multi-district litigation,” Bodine told Cotton International. “Courts do it to operate more efficiently. Rather than hearing two or three or 50 separate lawsuits, with similar claims against the same defendant, they combine them.”
For a suit to be granted class-action status, it must meet several criteria:
1. The lawsuits must have legal and factual claims that are essentially the same.
2. The group of plaintiffs must have suffered the same, or very similar, injuries or damages. “For example, if
some plaintiffs suffered commercial damages while others suffered personal injuries, they wouldn’t be
grouped together in a class-action lawsuit.
3. There need to be a sufficient number of individual plaintiffs to merit class-action status. “There is no fixed
number that is required, but chances are greater if there are multiple plaintiffs in multiple states,” Bodine says.
Both consolidations and class-action suits are only done when requested by the plaintiffs, and even if a lawsuit is given class-action status, each individual plaintiff can decide whether he wants to join the group or pursue their own claim as an individual. In most cases, however, plaintiffs join the collective lawsuit due to the cost and time associated with such legal actions. The timeframe on a judge ruling on class-action status is difficult to estimate.
“There’s no black-and-white answer,” Bodine says. “A motion to have a court certify a group of plaintiffs as a class is an adversarial proceeding. If the defense doesn’t object, then it’s a quick decision. But defendants typically fight the certification of a class, and if they lose, they can appeal that ruling – which can take months.”
All in all, the case is just another unknown in the global cotton trade. Other huge areas that need to be resolved include:
• The role of ICE and the possible need for a contract that allow delivery of non-U.S. origin cotton and also
allow delivery outside the United States
• The complete lack of contract sanctity in the supply chain from mills to retailers
• What merchants can do to improve their risk management options