- From LexisNexis® Mealey’s™ Daily Legal News.
The federal judge in New York overseeing the London InterBank Offered Rate (LIBOR) antitrust litigation on May 3 granted over-the-counter, bondholder and exchange-based plaintiffs two weeks to move for leave to amend their amended complaints to add allegations of antitrust injury related to their claims that 16 banks manipulated the LIBOR interest rate benchmark (In re: LIBOR-Based Financial Instruments Antitrust Litigation, No. 11 MD 2262, S.D. N.Y.).
On March 28, U.S. Judge Naomi Reice Buchwald of the Southern District of New York dismissed the antitrust claims, concluding that “[r]egardless of whether defendants’ conduct constituted a violation of the antitrust laws,” their antitrust claims failed because they did not allege that their injury resulted from any harm to competition.
In the instant memorandum, Judge Buchwald commented that “we are inclined to think that none of these allegations would change the outcome reached” in the March 28 order. Moreover, “given the obvious magnitude of this litigation,” “the comprehensive manner in which we have already addressed the issues in this case, and the tremendous amount of resources already expended by defendants, we will not require defendants to respond to any motion for leave to amend until we have had an opportunity to review such motion ourselves and have determined that a response is necessary.”
Benchmark
Each business day, the defendant banks submit to the British Banking Association (BBA) a rate that is supposed to reflect their expected costs of borrowing U.S. dollars from other banks, and the association computes and publishes the average of these submitted rates.
The published average is used as a benchmark for short-term interest rates in financial instruments worldwide.
The plaintiffs allege that the defendants conspired to report rates that did not reflect their good-faith estimates of their borrowing costs and that the defendants submitted artificial rates from August 2007 to May 2010.
The over-the-counter (OTC) plaintiffs, exchange-based plaintiffs and bondholder plaintiffs each brought a purported class action against the defendants. A fourth group of plaintiffs, known as Schwab plaintiffs, filed three lawsuits: one was filed by Charles Schwab Corp., Charles Schwab Bank N.A. and Charles Schwab & Co. Inc.; a second was filed by three Schwab bond market funds; and a third was filed by seven Schwab money funds. The Judicial Panel on Multidistrict Litigation ordered that the pretrial proceedings of the cases be consolidated before Judge Buchwald.
All four categories of plaintiffs alleged a violation of Section 1 of the Sherman Act, and the Schwab plaintiffs also alleged a violation of California’s antitrust statute and Racketeer Influenced and Corrupt Organizations (RICO) Act. The exchange-based plaintiffs also alleged violations of the Commodity Exchange Act (CEA) and vicarious liability for and aiding and abetting such manipulation. State law causes of action were asserted by the OTC, exchange-based and Schwab plaintiffs.
The defendant banks are Bank of America Corp., Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ Ltd., Citibank N.A., Citigroup Inc., Cooperatieve Bentrale Raiffeisen-Boerenleenbank B.A., Credit Suisse Group AG, Deutsch Bank AG, HSBC Holdings plc, HSBC Bank plc, JPMorgan Chase & Co., JPMorgan Chase & Co., JPMorgan Chase Bank N.A., Lloyds Banking Group plc, HBOS plc, Norinchukin Bank, Royal Bank of Canada, Royal Bank of Scotland Group plc and WestLB AG.
No Antitrust Injury
In the March 28 order dismissing the antitrust claims, Judge Buchwald concluded that the LIBOR-setting process was not itself competitive and that the plaintiffs did not allege that the banks’ conduct had an anti-competitive effect in any market in which the defendants competed.
“Because the LIBOR-setting process was not intended to be competitive, even if we were to credit plaintiffs’ allegations that defendants subverted this cooperative process by conspiring to submit artificial estimates instead of estimates made in good faith, it would not follow that plaintiffs have suffered antitrust injury. Plaintiffs’ injury would have resulted from defendants’ misrepresentation, not from harm to competition,” the judge said.
“Plaintiffs’ allegation that the prices of LIBOR-based financial instruments ‘were affected by Defendants’ unlawful behavior,’ such that ‘Plaintiffs paid more or received less than they would have in a market free from Defendants’ collusion,’ . . . might support an allegation of price fixing but does not indicate that plaintiffs’ injury resulted from an anticompetitive aspect of defendants’ conduct,” the judge reasoned.
Similarly, there was no harm to competition in the interbank loan market, the judge found.
‘Normal Competitive Conduct’
Moreover, “the harm alleged here could have resulted from normal competitive conduct. Specifically, the injury plaintiffs suffered from defendants’ alleged conspiracy to suppress LIBOR is the same as the injury they would have suffered had each defendant decided independently to misrepresent its borrowing costs to the BBA. Even if such independent misreporting would have been fraudulent, it would not have been anticompetitive, and indeed would have been consistent with normal commercial incentives facing defendants,” the judge said.
Judge Buchwald rejected the plaintiffs’ arguments that because LIBOR is a proxy for competition in the underlying market for interbank loans, the defendants harmed competition by manipulating LIBOR.
“[T]he fact remains that competition in the interbank lending market and in the market for LIBOR-based financial instruments proceeded unimpaired. If LIBOR no longer painted an accurate picture of the interbank lending market, the injury plaintiffs suffered derived from misrepresentation, not from harm to competition,” the judge said.
Because the plaintiffs did not suffer an antitrust injury, they lacked standing to bring antitrust claims, the judge ruled.
Exchange-Based Claims
Addressing the exchange-based plaintiffs’ CEA claims, Judge Buchwald rejected the defendants’ argument that the claims involved an impermissible extraterritorial application of the CEA because they rely exclusively on foreign commodities manipulation.
Instead, the judge found that “[b]y manipulating LIBOR, defendants allegedly manipulated the price of Eurodollar futures contracts, which is directly based on LIBOR. Eurodollar futures contracts, of course, are traded on the Chicago Mercantile Exchange. . . . Because plaintiffs’ claims involve manipulation of the price of domestically traded futures contracts, they are not impermissibly extraterritorial.”
In addition, Judge Buchwald concluded that the plaintiffs adequately pleaded commodities manipulation. However, Judge Buchwald concluded that the exchange-based plaintiffs’ claims are time-barred to the extent that they rely on contracts purchased from August 2007 through May 29, 2008, the date that, based on publicly available information, the plaintiffs were on inquiry notice of their injury.
Also in the March 28 order, the judge dismissed the RICO claim as barred by the Private Securities Litigation Reform Act and declined to exercise supplemental jurisdiction over the state law claims, except the Schwab plaintiffs’ California antitrust claim and the exchange-based plaintiffs’ New York common law unjust enrichment claims, which the judge dismissed with prejudice.
Counsel
The OTC plaintiffs are represented by Allan Steyer, Henry A. Cirillo and Lisa Marie Black of Steyer Lowenthal Boodrookas Alvarez & Smith in San Francisco, Michael D. Hausfeld, Steig D. Olson, Michael P. Lehmann and Jon T. King of Hausfeld in New York and Arun S. Subramanian of Susman Godfrey in New York. The exchange-based plaintiffs are represented by Daniel Hume, David E. Kovel, Roger W. Kirby and Surya Palaniappan of Kirby McInerney in New York and Samuel Howard Rudman of Robbins Geller Rudman & Dowd in Melville, N.Y.
The bond plaintiffs are represented by David Haym Weinstein, Robert S. Kitchenoff, Jeremy S. Spiegel and Steven A. Asher of Weinstein Kitchenoff & Asher in Philadelphia and Karen L. Morris and Patrick F. Morris of Morris & Morris in Wilmington, Del. The Schwab plaintiffs are represented by Richard Martin Heimann, Eric B. Fastiff, Brendan Patrick Glackin and Andrew Scirica Kingsdale of Lieff Cabraser Heimann & Bernstein in San Francisco, Steven Eliott Fineman and Michael J. Miarmi of Lieff Cabraser in New York and Lowell Harry Haky of Charles Charles & Co. Inc.
Bank of America Corp. and Bank of America N.A. are represented by Robert F. Wise Jr., Arthur J. Burke and Paul S. Mishkin of Davis Polk & Wardwell in New York. Bank of Tokyo-Mitsubishi UFJ Ltd. is represented by Daryl A. Libow and Christopher M. Viapiano of Sullivan & Cromwell in Washington, D.C. Citibank N.A. and Citigroup Inc. are represented by Andrew A. Ruffino of Covington & Burling in New York, Alan M. Wiseman and Thomas A. Isaacson of Covington & Burling in Washington and Michael R. Lazerwitz and Joon H. Kim of Cleary Gottlieb Steen & Hamilton in New York. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. is represented by David R. Gelfand and Sean M. Murphy of Milbank Tweed Hadley & McCloy in New York.
Credit Suisse Group is represented by Herbert S. Washer, Elai Katz and Joel Kurtzberg of Cahill Gordon & Reindel in New York and Richard Schwed of Shearman & Sterling in New York. Deutsche Bank AG is represented by Moses Silverman and Andrew C. Finch of Paul, Weiss, Rifkind, Wharton & Garrison in New York. HSBC Holdings plc and HSBC Bank plc are represented by Ed DeYoung and Roger B. Cowie of Locke Lord in Dallas and Gregory T. Casamento of Locke Lord in New York. JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A., are represented by Thomas C. Rice, Juan A. Arteaga and Joan E. Flaherty of Simpson Thacher & Bartlett in New York.
Lloyds Banking Group plc and HBOS plc is represented by Marc J. Gottridge and Eric J. Stock of Hogan Lovells in New York and Richard Williamson and Megan P. Davis of Flemming Zulack Williamson Zauderer in New York. Norinchukin Bank is represented by Andrew W. Stern, Alan M. Unger and Nicholas P. Crowell of Sidley Austin in New York. Royal Bank of Canada is represented by Arthur W. Hahn and Christian T. Kemnitz of Katten Muchin Rosenman in Chicago. Royal Bank of Scotland Group plc is represented by Robert G. Houck, Alejandra de Urioste and James D. Miller of Clifford Chance in New York. WestLB AG is represented by Ethan E. Litwin and Morgan J. Stecher of Hughes Hubbard & Reed in New York.
