Louis Dreyfus loses bid to dismiss cotton squeeze lawsuit

By Nate Raymond

NEW YORK, Dec 20 (Reuters) - Louis Dreyfus Commodities BV lost a bid on Friday to dismiss a lawsuit by traders accusing it of illegally manipulating the price of cotton futures in 2011.

U.S. District Judge Andrew Carter in Manhattan dismissed one claim in the proposed class action, but largely allowed the lawsuit to move forward.

Carter (Frankfurt: HCH.F - news) said the traders' claims "lead to a reasonable inference that defendants caused the alleged artificial prices in the cotton futures market during the May and July 2011 contract periods."

Representatives for Netherlands-based Louis Dreyfus did not immediately respond to a request for comment. Christopher Lovell, a lawyer for the plaintiffs, declined comment.

The lawsuit has been watched closely by the commodities sector since it was filed last year by Mark Allen, a former senior trader at Louis Dreyfus rival Glencore Xstrata Plc (Other OTC: GLCNF - news) .

The case stemmed from upheaval in the cotton market in 2011, when prices hit their highest levels since the U.S. Civil War in the 1860S and then fell by more than half by July.

The lawsuit contended that Louis Dreyfus cornered the market and kept prices of IntercontinentalExchange Group Inc (NYSE: ICE - news) cotton futures contracts expiring in May and July 2011 artificially high.

The traders accused Louis Dreyfus of "uneconomically" overpaying for cotton and forcing deliveries, "that could have been satisfied more cheaply in the cash market."

Allen, who lost his job at Glencore in November 2011 after the firm lost more than $300 million in the market, filed the first proposed class action. Other traders and speculators followed, and the cases were consolidated.

An amended complaint accused Louis Dreyfus of market manipulation and aiding and abetting under the Commodity Exchange Act, Sherman Act antitrust violations, and unjust enrichment.

In moving to dismiss, Louis Dreyfus argued the plaintiffs had not presented enough facts to show it had the ability to influence market prices.

In his ruling, Carter said that, if all the traders claimed was that Louis Dreyfus had large long positions and stood for delivery without going to the cash markets, "there would be little need to explore the manipulation claim any further."

But he added the traders' case went further by claiming Louis Dreyfus worsened market congestion by adding to their long positions in recognition that it already held positions beyond the amount of available certified corn.

"These allegations, if true, when coupled with the other alleged conduct could demonstrate a squeeze through exacerbation of a congested market and, in turn, the ability to influence market prices," Carter wrote.

The judge dismissed one set of claims asserting unjust enrichment, saying that, even if futures contracts did not preclude such a claim, the traders had not alleged enough of a relationship to Louis Dreyfus.

The case is In Re: Term Commodities Cotton Futures Litigation, U.S. District Court, Southern District of New York, 12-cv-05126.