There are lots of ways derivatives traders could allege the kind of harm under the Commodity Exchange Act to be granted statutory standing and show injury, according to the U.S. Court of Appeals for the Second Circuit on Friday.

There's the obvious direct-trading scenario where the alleged particular harm caused by the counterparty's actions can most easily be pointed to. Trading on exchanges makes for a bit more complicated set of situations, but district courts have handled many of the kinds of scenarios where the kind of harm to justify standing under the CEA can be at least plausibly alleged.

Traders could allege they lost money or were deprived of as much money as they would have otherwise gotten on the same commodities or derivatives traded at the same time or on the same exchange, or both, as the party committing the fraud. Maybe the fraud was impacting an indexed pricing situation. Any number of overlapping scenarios can be alleged that involve a loss because another trader in the market was manipulating things to his or her benefit.

The problem in Harry v. Total Gas & Power North America, 17-1199, which the panel—composed of Circuit Judges Rosemary Pooler, Richard Wesley and Peter Hall—decided Friday, was that the appellants in a proposed class action ultimately couldn't make that showing.

The suit was brought by traders of natural gas derivatives who do the bulk of their trading on a Louisiana-based hub that operates as the primary natural gas hub in the country. Total Gas & Power was investigated by the U.S. Commodity Futures Trading Commission and the Federal Energy Regulatory Commission over allegations they were buying up big controlling positions of natural gas at other hubs, where they could manipulate the price relative to the central Louisiana hub to maximize positions pegged to the price of gas there.

As the panel noted, the CFTC's investigation resulted in a $3.6 million settlement with Total Gas & Power. The FERC's enforcement action, seeking over $213 million, is ongoing.

Investors trading on the New York Mercantile Exchange and Intercontinental Exchange sued for damages over the manipulation Total Gas & Power was allegedly involved in. The catch was that the suing investors were only trading on derivatives tied to the central hub in Louisiana. All the allegations of actual price manipulation were happening at other hubs.

U.S. District Judge John Koeltl of the Southern District of New York granted a motion to dismiss the traders' claims, finding that they failed to plead an actual injury and therefore couldn't establish standing or state a CEA or antitrust claim.

The panel Friday said they half agreed with Koeltl. On the one hand, they found the court erred on whether the appellants could establish standing, as the substantive cause standard under the statute is lower than the constitutional standard. The appellants did, in fact, meet the burden, the panel said, but failed to state an actual injury, thus dooming their suit.

None of the ways a trader could make out a CEA claim were present in the present case, the panel said. Instead, their allegations were that the manipulation of prices at the remote hubs caused artificial prices in natural gas contracts at the central hub. This in turn distorted prices at the central hub, where all the appellant traders were doing their business. To make this stick, greater detail of just how the traders were actually harmed needed to be presented.

“A boilerplate pleading stating that boundaries between markets are porous would allow practically any trader to sue for any manipulation they happened to have heard about in any other commodity,” the panel stated.

More complicated trades, and those impacted by increasingly distant parties, will require a plaintiff to “elaborate some tangible mechanism whereby a defendant's trading affects hers more than marginally” if a CEA claim is to survive, the panel said. The facts of the case will necessitate the level of detail needed.

In the current case, the panel said there was simply not enough information presented to determine what impact the Total Gas & Power manipulations had on the appellants, or if they were even in the same market.

“The enormous disparity between the number of contracts defendants purchased in order to successfully manipulate one or two regional markets and the number of contracts they would have had to purchase to make a dent at mighty Henry Hub render it implausible that trading at the former distorted trading at the latter,” the panel said, referring to the central hub in Louisiana. Beyond this, the appellants also failed to show that they were damaged in any way by Total Gas & Power's actions.

The panel affirmed the district court's dismissal, absent the standard issue.

Total Gas & Power was represented by Gibson, Dunn & Crutcher. Partner William Scherman said in a statement that the team and client were pleased Koeltl's ruling was ultimately upheld.

“This confirms what we have been saying all along—that our traders complied with applicable laws and with a legitimate business purpose,” he said.

Kirby McInerney partner David Kovel led legal efforts for the proposed class on appeal. He did not respond to a request for comment.