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Second Circuit Endorses A Domestic Transaction Test For Private Claims Under The Commodity Exchange Act

Client Advisory

September 23, 2014

On September 4, 2014, a divided panel of the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of fraud claims under § 4o of the Commodity Exchange Act (“CEA”) because the Russian plaintiff failed to show that her claims were based on a U.S. domestic transaction in commodities. The Loginovskaya v Batratchenko, __ F.3d __, 2014 WL 4358439 (2d Cir. 2014) decision is the first of its kind to apply the Supreme Court’s decision in Morrison v. Nat’l Australia Bank. Ltd, 561 U.S. 247 (2010) to the provisions of the CEA. Specifically, the Second Circuit found (1) that the statutory right of action of the CEA (§ 22) is transactional in nature, and (2) that Congress did not intend for it to generally apply to foreign transactions.[1] 

As the Court summarized, “the CEA creates a private right of action for persons anywhere in the world who transact business in the United States, and does not open our courts to people who choose to do business elsewhere.”[2] Consequently, the Court found that plaintiff, a Russian investor, could not bring claims under § 4o (the anti-fraud provisions of the CEA) against a family of hedge funds and their chief executive where the decision to invest occurred in Russia and there was no indication that title was transferred in the United States; notwithstanding the fact that some of the defendants had connections to the United States and that plaintiff wired money to a bank in New York.[3] This is a reversal of the pre-Morrison “conduct or effects” test that sought to extend commodities laws to cases in which either the fraudulent conduct, or injury, occurred in the United States. 

The Second Circuit has now made clear that to bring a commodities fraud claim a private plaintiff must now allege that it engaged in one of the commodity transactions defined in § 22 of the CEA, and that such transactions occurred in the United States.[4] This is a “threshold” requirement that the plaintiff must overcome before “reaching the merits” of his or her fraud claim.[5]


For more information concerning the matters discussed in this publication, please contact the authors, Gary D. Sesser (212-238-8820, sesser@clm.com), Judith Wallace (212-238-8743, wallace@clm.com), and Alexander G. Malyshev (212-238-8618, malyshev@clm.com), who represented the successful defendants, or your regular CL&M attorney.


[1]See Loginovskaya, at * 5 (finding that “Section 22 allows a private right of action against a person whose violation of the CEA ‘result[s] from one or more of the transactions’” and that “[g]iven that CEA § 22 limits the private right to suits over transactions, the suits must be based on transactions occurring in the territory of the United States.”) 

[2]See Loginovskaya, at * 7. 

[3]See Loginovskaya, at * 7-8.

[4]In 2010 the Dodd-Frank Act extensively amended the CEA to add coverage for swaps and derivatives, and Section 722 of the Dodd-Frank Act provided for extraterritorial application of the CEA to certain swap transactions in CEA § 2(i).  Such swap transactions were not at issue in this case.

[5]Loginovskaya, at * 5.



Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
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