Gelboim v. Credit Suisse Group AG et al
Filing
77
MEMORANDUM AND ORDER denying (418) Motion for Reconsideration; terminating (428) Motion to Strike; denying (453) Motion to Dismiss; granting in part and denying in part (507) Motion to Dismiss; granting (516) Motion to Dismiss in case 1:11-md-02 262-NRB. For the reasons stated above, exchange-based plaintiffs' motion for reconsideration of our ruling on trader-based claims is denied, but their motion for leave to amend their complaint is granted; defendants' motion to dismiss CEA claims on scienter grounds is denied; defendants' motion to dismiss CEA claims arising out of contracts purchased between May 30, 2008 and April 14, 2009 is granted; defendants' motion to dismiss OTC plaintiffs' contract and unjust enrichment claims is granted in part and denied in part; and defendant Societe Generale's motion to dismiss the exchange-based plaintiffs' complaint is granted. It has been nearly two years since defendants first moved to dismiss plaintiff s' consolidated amended complaints. Since then, this Court has issued three major opinions and the parties have submitted hundreds, if not thousands, of pages of briefing materials, all in an attempt to resolve the threshold question of any lit igation: what claims, if any, have plaintiffs adequately pled? Now, at long last, there is clarity. OTC plaintiffs may state claims for breach of the implied covenant of good faith and fair dealing, and claims for unjust enrichment, but only ag ainst those defendant banks with which OTC plaintiffs transacted directly. Exchange-based plaintiffs may state claims under the CEA based on contracts purchased between April 15, 2009 and the end of the Class Period, based on a theory that defendants ' alleged persistent suppression of LIBOR caused them damages; however, no such claim may lie against Societe Generale, as those claims are time barred. Exchange-based plaintiffs may also state claims against Barclays and Rabobank based on the alleged day-to-day, trader-based manipulation that occurred between January 1, 2005 and August 2007. This Memorandum and Order resolves docket entry nos. 396, 418, 428, 453, 507, and 516. (Signed by Judge Naomi Reice Buchwald on 6/23/2014) Filed In Associated Cases: 1:11-md-02262-NRB et al. ***Docketed in all member and related cases pursuant to instructions from Chambers. (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------X
In re:
LIBOR-Based Financial Instruments
Antitrust Litigation.
MEMORANDUM AND ORDER
11 MD 2262 (NRB)
THIS DOCUMENT RELATES TO: All Cases
-------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
INTRODUCTION
On
March
29,
2013,
we
issued
a
Memorandum
and
Order
granting in part and denying in part defendants’ motions to
dismiss plaintiffs’1 complaints, which alleged that they suffered
injury
based
InterBank
on
the
Offered
Instruments
Rate
Antitrust
2013) (“LIBOR I”).
defendants’
manipulation
(“LIBOR”).
Litig.,
935
In
F.
re
Supp.
of
the
London
LIBOR–Based
2d
666
Fin.
(S.D.N.Y.
Among other determinations relevant to the
pending motions, we dismissed exchange-based plaintiffs’ claims
under the Commodity Exchange Act (“CEA”) to the extent that they
were based on Eurodollar futures contracts entered into between
August
2007
and
May
29,
2008,
but
allowed
those
based
on
Currently, the plaintiffs in this case have been subdivided into four
groups:
(1)
over-the-counter
(“OTC”)
plaintiffs,
(2)
exchange-based
plaintiffs, (3) bondholder plaintiffs, and (4) Charles Schwab plaintiffs.
The motions now pending apply to only the first two groups.
1
contracts entered into between May 30, 2008 and May 2010 to
proceed.2
On August
23, 2013, we issued a second Memorandum and
Order in response to a series of additional motions addressed to
the complaints.
In re LIBOR–Based Fin. Instruments Antitrust
Litig., 962 F. Supp. 2d 606 (S.D.N.Y. 2013) (“LIBOR II”).
In
LIBOR II, we made the following rulings: (1) denied exchangebased
plaintiffs’
trader-based
motion
to
manipulation;
add
(2)
allegations
denied
with
defendants’
respect
motion
to
for
reconsideration of our finding that plaintiffs had adequately
pled scienter under the CEA, but did so without prejudice to
defendants
specific
filing
concerns;
an
(3)
additional
granted
motion
defendants
that
leave
responded
to
move
to
to
dismiss, on statute of limitations grounds, CEA claims arising
out of contracts entered into between May 30, 2008 and April 14,
2009; (4) granted OTC plaintiffs’ motion for leave to reassert
their unjust enrichment claim and to add a claim for breach of
the implied covenant of good faith and fair dealing; and (5)
Additionally, in LIBOR I, we dismissed plaintiffs’ antitrust and RICO claims
in full; we dismissed with prejudice the exchange-based plaintiffs’ state-law
claim for unjust enrichment; and we declined to exercise supplemental
jurisdiction over the remaining state-law claims.
2
2
granted exchange-based plaintiffs leave to amend their complaint
to add Société Générale (“SG”) as a defendant.3
Presently before the Court are
seven motions.
Six
of
these motions were contemplated by our decision in LIBOR II: (1)
exchange-based
plaintiffs’
motion
for
reconsideration
of
our
decision denying them leave to add allegations of day-to-day,
trader-based manipulation; (2) exchange-based plaintiffs’ motion
for leave to amend their complaint to include new, heretofore
unpled
allegations
of
trader-based
conduct;
(3)
defendants’
motion for reconsideration of our finding that plaintiffs had
pled scienter; (4) defendants’ motion to dismiss exchange-based
plaintiffs’ claims based on contracts purchased between May 30,
2008 and April 14, 2009; (5) defendants’ motion to dismiss OTC
plaintiffs’
implied
claims
covenant
for
of
unjust
good
enrichment
faith
and
fair
and
breach
dealing;
defendant SG’s motion to dismiss the complaint.
of
the
and
(6)
The seventh is
defendants’ motion to strike the declaration that exchange-based
plaintiffs
submitted
in
connection
with
its
motion
for
reconsideration (the “Kovel Declaration”).
For the reasons stated below, exchange-based plaintiffs’
motion for reconsideration is denied, but their motion for leave
In addition, we denied exchange-based plaintiffs’ motion for interlocutory
appeal, and we denied OTC, bondholder, and exchange-based plaintiffs’ motions
to replead antitrust claims that we dismissed in LIBOR I.
3
3
to amend their complaint to add certain allegations of day-today, trader-based manipulation is granted; defendants’ motion
for
reconsideration
of
our
holding
that
exchange-based
plaintiffs have adequately pled scienter is denied; defendants’
motion to dismiss claims based on contracts purchased between
May 30, 2008 and April 14, 2009 is granted; defendants’ motion
to
dismiss
OTC
plaintiffs’
claims
for
unjust
enrichment
and
breach of the implied covenant of good faith and fair dealing is
granted in part and denied in part; defendant SG’s motion to
dismiss is granted; and defendants’ motion to strike the Kovel
Declaration is granted.4
Because
the
facts
thoroughly discussed in
underlying
LIBOR I
this
case
have
and then elaborated
been
upon in
LIBOR II, we will proceed directly to our consideration of the
pending motions.
Local Civil Rule 6.3 prohibits the filing of affidavits in support of a
motion for reconsideration “unless directed by the Court.”
Local Civ. R.
6.3; see also Williams v. Citigroup Inc., 659 F.3d 208, 214 n.3 (2d Cir.
2011).
Here, exchange-based plaintiffs neither sought leave nor received
permission to file the Kovel Declaration, which was therefore submitted in
violation of the Local Civil Rule. This is reason enough to strike the Kovel
Declaration. See Ferring B.V. v. Allergan, Inc., No. 12 Civ. 2650(RWS), 2013
WL 4082930, at *2 (S.D.N.Y. Aug. 7, 2013) (striking an unsolicited
declaration pursuant to Local Civil Rule 6.3); Pegoraro v. Marrero, No. 10
Civ. 00051(AJN)(KNF), 2012 WL 3112331, at *3 (S.D.N.Y. Aug. 1, 2012)
(refusing to consider unauthorized declaration in deciding motion under Local
Civil Rule 6.3); Ramasamy v. Essar Global Ltd., No. 11 Civ. 3912(JSR), 2012
WL 1681763, at *1 n.1 (S.D.N.Y. May 8, 2012) (same).
Moreover, we had no
occasion to rely on the Kovel Declaration in deciding plaintiffs’ motion for
reconsideration.
Accordingly, we grant defendants’ motion to strike the
Kovel Declaration.
4
4
DISCUSSION
I.
Legal Standards
A.
Motion for Reconsideration
“Reconsideration
is
overlooked
controlling
underlying
motion
appropriate
decisions
which,
had
only
or
where
a
court
facts
been
they
presented
in
considered,
has
the
might
reasonably have altered the result of the initial decision.”
In
re Fosamax Prods. Liab. Litig., 815 F. Supp. 2d 649, 651–52
(S.D.N.Y. 2011) (citing Shrader v. CSX Transp., Inc., 70 F.3d
255, 257 (2d Cir. 1995)).
Because the remedy of reconsideration
does
“where
not
relevant
provide
relief
factual
or
legal
a
party
failed
arguments,”
a
to
party
present
seeking
reconsideration “may not advance new facts, issues or arguments
not previously presented to the Court.”
marks omitted).
Id. (internal quotation
Reconsideration is “an extraordinary remedy to
be employed sparingly,” given “the interests of finality and
conservation
of
scarce
judicial
resources.”
Small
v.
Nobel
Biocare USA, LLC, Nos. 05 Civ. 3225(NRB), 06 Civ. 683(NRB), 2012
WL 952396, at *1 (S.D.N.Y. Mar. 21, 2012) (quoting In re Initial
Pub. Offering Sec. Litig., 399 F. Supp. 2d 298, 300 (S.D.N.Y.
2005))
(internal
quotation
marks
omitted).
The
decision
to
grant or deny a motion for reconsideration is within “the sound
5
discretion of the district court.”
Aczel v. Labonia, 584 F.3d
52, 61 (2d Cir. 2009) (internal quotation marks omitted).
B.
Motion for Leave to Amend
Under Rule 15(a) of the Federal Rules of Civil Procedure,
“[t]he court should freely give leave” to a party to amend its
complaint “when justice so requires.”
Fed. R. Civ. P. 15(a)(2).
“Generally, a district court has discretion to deny leave for
good
reason,
including
futility,
bad
undue prejudice to the opposing party.”
F.3d
329,
334
(2d
Cir.
2009)
faith,
undue
delay,
or
Holmes v. Grubman, 568
(quoting
McCarthy
v.
Dun
&
Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007)) (internal
quotation marks omitted).
Ultimately, “the grant or denial of
an opportunity to amend is within the discretion of the District
Court.”
Foman v. Davis, 371 U.S. 178, 182 (1962); see also In
re CRM Holdings Sec. Litig., No. 10 CIV 00975(RPP), 2013 WL
787970, at *7 (S.D.N.Y. Mar. 4, 2013) (“The grant or the denial
of an opportunity to amend a complaint falls squarely within the
discretion of a district court.”).
C.
Motion to Dismiss
When deciding a motion to dismiss for failure to state a
claim pursuant to Federal Rule of Civil Procedure 12(b)(6), the
Court
must
complaint
accept
and
draw
as
all
true
all
factual
reasonable
6
allegations
inferences
in
in
the
plaintiff’s
favor.
Harris v. Mills, 572 F.3d 66, 71 (2d Cir. 2009); Kassner
v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007).
Nevertheless,
a
plaintiff’s
“[f]actual
allegations
must
be
enough to raise a right of relief above the speculative level.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
court
accepts
true,
those
all
of
the
allegations
plaintiff’s
must
factual
demonstrate
“more
Once a
allegations
than
a
as
sheer
possibility that a defendant has acted unlawfully” in order to
pass muster under Rule 12(b)(6).
662, 678 (2009).
Ashcroft v. Iqbal, 556 U.S.
If a plaintiff has “not nudged [its] claims
across the line from conceivable to plausible, [the] complaint
must be dismissed.”
Twombly, 550 U.S. at 570.
In the context of claims for commodities manipulation, such
as those alleged by the exchange-based plaintiffs, a plaintiff
must also meet the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b).
See LIBOR I, 935 F. Supp. 2d at
713–14; In re Amaranth Natural Gas Commodities Litig., 587 F.
Supp. 2d 513, 535 (S.D.N.Y. 2008) (“Amaranth I”); In re Crude
Oil Commodity Litig., No. 06 Civ. 6677(NRB), 2007 WL 1946553, at
*5 (S.D.N.Y. June 28, 2007) (“Crude Oil I”).
Rule 9(b) provides
that, “[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.”
Fed.
R.
Civ.
P.
9(b).
“This
7
pleading
constraint
serves
to
provide a defendant with fair notice of a plaintiff’s claim,
safeguard his reputation from improvident charges of wrongdoing,
and protect him against strike suits.”
ATSI Commc’ns, Inc. v.
Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007) (citing Rombach
v. Chang, 355 F.3d 164, 171 (2d Cir. 2004)).
generally
relax
manipulation
Rule
9(b)’s
claims,
requirements
“[a]llegations
that
in
While courts
the
are
context
of
conclusory
or
unsupported by factual assertions are insufficient.”
II.
Id.
Trader-Based Conduct
A.
Procedural Background
In LIBOR I, we addressed plaintiffs’ argument that their
claims
properly
suppression
of
related
LIBOR,
not
but
only
also
to
to
alleged
day-to-day,
persistent
trader-based
manipulation intended to benefit the banks’ respective trading
positions
in
the
Eurodollar
futures
market.
Plaintiffs’
assertions were based largely on the Barclays settlements made
public on June 27, 2012, which included admissions of efforts to
manipulate LIBOR by individual traders.
As a result, we granted
plaintiffs leave to move to amend their complaint to include
allegations of day-to-day manipulation derived from the Barclays
settlements.
LIBOR
I,
935
F.
Supp.
2d
at
709.
We
also
expressed our preliminary view that plaintiffs’ potential claims
based on contracts bought prior to the start of the Class Period
8
(pre-August 2007) were not time barred, whereas those based on
contracts purchased after August 2007 were likely time barred,
since those plaintiffs were on inquiry notice of their injury by
May 29, 2008.5
Id.
On May 23, 2013, plaintiffs filed their motion for leave to
amend
their
complaint
manipulation.
that
to
include
claims
based
on
day-to-day
We addressed this motion in LIBOR II, finding
plaintiffs’
proposed
amendments
failed
to
“adequately
allege[] that they suffered an injury as a result of defendants’
alleged
trader-based
conduct,
and
thus
plaintiffs
standing under the CEA to pursue such claims.”
Supp. 2d at 619.
not
an
element
lack[ed]
LIBOR II, 962 F.
We also found that “although loss causation is
of
a
commodities
manipulation
claim,
private
plaintiffs must still plead actual damages in order to have
standing
to
bring
suit
under
the
CEA,”
plaintiffs in this case had not met.
a
requirement
Id. at 619 n.16.
that
In
contrast to the persistent suppression claims, the trader-based
The articles that placed plaintiffs on inquiry notice of their injury by May
29, 2008 -- as discussed in LIBOR I -- suggested that LIBOR was fixed at
artificial levels beginning in August 2007, which coincided with the start of
the financial crisis.
A person of ordinary intelligence reading those
articles would therefore not have been on inquiry notice of his injury if he
had purchased Eurodollar futures contracts prior to August 2007, as those
articles did not indicate LIBOR’s artificiality at that time; indeed, he
would have likely been put on inquiry notice of his injury only after the
publication of the Barclays settlements on June 27, 2012.
These facts lead
to the somewhat counterintuitive conclusion that trader-based claims based on
contracts purchased before August 2007 would not be time barred, but claims
based on contracts purchased after August 2007 would be. See LIBOR I, 935 F.
Supp. 2d at 709.
5
9
claims alleged that LIBOR was manipulated in a way that was
“episodic and varying in direction.”
Id. at 620.
Plaintiffs
therefore needed to plead that they suffered actual damages by
plausibly
alleging
“(1)
that
they
transacted
in
Eurodollar
futures contracts on days on which Eurodollar futures contract
prices were artificial as a result of trader-based manipulation
of LIBOR, [and] (2) that their positions were such that they
were injured.”
“broad
Id. at 620–21.
allegations”
damages.”
that
Id. at 621.
Instead, plaintiffs only offered
were
“insufficient
to
allege
actual
Consequently, plaintiffs’ motion for
leave to amend their complaint to add allegations of traderbased manipulation of Eurodollar futures contracts was denied.
Plaintiffs then made two further motions.
The first, filed
on September 6, 2013, was a motion for reconsideration of “that
portion of [LIBOR II] denying Exchange-Based Plaintiffs’ motion
to
[amend
their
trader-based
complaint]
manipulation
to
during
include
the
through the beginning of August 2007.”
allegations
period
January
based
1,
on
2005
Pls.’ Notice of Mot. for
Recons. of the Court’s Aug. 23, 2013 Mem. & Order at 1.
The
second, filed on September 10, 2013, was a motion for leave to
file an amended complaint that would include new allegations of
10
trader-based conduct from pre-August 2007.
Pls.’ Sept. 10, 2013
Letter at 3.6
It
was
not
reconsideration
until
motion
plaintiffs’
that
reply
plaintiffs
brief
furnished
on
the
examples
of
specific dates when plaintiffs traded in Eurodollar futures and
were allegedly harmed by artificial LIBOR fixes.
In order to
fully explore this issue, we solicited further briefing from
both parties, and those sur-replies were filed by October 22,
2013.
Then,
while
Coöperatieve
Futures
motions
Centrale
(“Rabobank”)
including
these
settled
the
U.S.
Trading
manipulation.
various
Department
Commission
to
pending,
defendant
Raiffeisen-Boerenleenbank
with
Again,
were
--
government
B.A.
regulators
of
Justice
and
for
conduct
relating
ensure
a
full
the
record,
--
Commodity
to
we
LIBOR
granted
plaintiffs leave to supplement their motion for reconsideration
with
information
documents.
obtained
from
the
Rabobank
settlement
We also permitted defendants to respond, which they
did by January 21, 2014.
More precisely, on September 10, 2013, plaintiffs submitted a letter
requesting a pre-motion conference to seek leave to amend their operative
complaint.
Defendants submitted an opposition letter, and plaintiffs
submitted a reply.
In a letter to the parties dated October 8, 2013, we
proposed that “given the obvious overlap between the plaintiffs’ motion to
reargue and the plaintiffs’ request for leave to move for leave to amend
their complaint,” we would “treat the letters on the leave to amend motion as
motion papers.” All parties assented to this approach.
6
11
To recap, plaintiffs filed in support of their motion for
reconsideration a moving brief, a reply, a sur-reply, and a
supplemental brief; defendants filed an opposition, a sur-reply,
and a supplemental brief of their own.
Also fully briefed is
plaintiffs’
their
motion
for
leave
to
amend
complaint.
We
address both motions concerning trader-based claims below.
B.
Analysis
1.
Motion for Reconsideration
In LIBOR II, we denied plaintiffs’ motion for leave to
amend their complaint to include trader-based claims, finding
that the claims asserted at that time “could not withstand a
motion to dismiss pursuant to Rule 12(b)(6).”
LIBOR II, 962 F.
Supp. 2d at 619 (quoting Lucente v. Int’l Bus. Machs. Corp., 310
F.3d
243,
omitted).
258
(2d
Plaintiffs
Cir.
now
2002))
(internal
quotation
assert
that
Court
this
marks
erred
in
denying leave to add the proposed amendments because they can
“address the deficiencies identified by the court and allege
facts sufficient to support [their] claim[s].”
Panther Partners
Inc. v. Ikanos Commc’ns, Inc., 347 F. App’x 617, 622 (2d Cir.
2009).
Plaintiffs further maintain that our finding of futility
warrants reconsideration because we overlooked two cases from
the Southern District of New York, including our own decision in
12
LIBOR
I.
For
the
reasons
stated
below,
we
reject
these
arguments and deny plaintiffs’ motion for reconsideration.
First,
misplaced.
plaintiffs’
reliance
on
Panther
Partners
is
Panther Partners has been interpreted not “as an
intervening
change
in
the
controlling
law
justifying
reconsideration of the denial of leave to amend,” but rather as
an “affirm[ation] [of] the familiar rule that a district court
always has discretion to grant leave to amend . . . .”
In re
CRM Holdings, 2013 WL 787970, at *8 (citations and internal
quotation marks omitted).
Indeed, Panther Partners reiterates
that “[g]ranting leave to amend is futile if it appears that
plaintiff
court
cannot
and
address
allege
facts
the
deficiencies
sufficient
to
Panther Partners, 347 F. App’x at 622.
identified
support
the
by
the
claim.”
As we stated in LIBOR
II, “despite the fact that plaintiffs indisputably have access
to their own Eurodollar futures contract trading records, the
[Proposed
Second
Amended
Complaint]
[was]
devoid
references to particular Eurodollar contracts.”
F. Supp. 2d at 621.
information
pleadings,
and
it
any
LIBOR II, 962
Given plaintiffs’ access to this necessary
their
was
of
failure
reasonable
to
for
incorporate
this
Court
it
to
into
assume
their
that
plaintiffs would be unable to amend their complaint to include
allegations
of
trader-based
conduct
13
that
could
survive
a
12(b)(6)
motion.
Therefore,
Panther
Partners
is
not
an
appropriate basis for reconsideration of our denial of leave to
amend in LIBOR II.
Second,
LIBOR
I
Putting
in
plaintiffs’
reaching
aside
the
argument
our
that
decision
in
notion
that
absurd
we
failed
LIBOR
this
II
to
is
Court
consider
meritless.
failed
to
consider an opinion that we had written mere months prior, our
analysis
of
plaintiffs’
claims
has
remained
consistent:
plaintiffs must plead actual damages to state a claim under the
CEA.
See 7 U.S.C. § 25(a)(1); LIBOR I, 935 F. Supp. 2d at 714;
LIBOR II, 962 F. Supp. 2d at 620.
Plaintiffs inexplicably fail
to grasp, however, that claims based on defendants’ persistent
suppression of LIBOR require different allegations to survive
than do those based on day-to-day, trader-based manipulation.
In the former scenario, we can assume LIBOR’s artificiality over
a given time period, which in turn would necessarily impact the
price of Eurodollar futures contracts purchased or sold in the
relevant
window.
In
the
latter
scenario,
since
LIBOR
was
allegedly artificial only for discrete days during the Class
Period, by their own reckoning, plaintiffs may have transacted
on
many
days
when
LIBOR
was
“true.”
Moreover,
because
the
manipulation was allegedly varying in direction, there may be
some
days
when
plaintiffs
were
14
actually
helped,
rather
than
harmed,
by
the
alleged
artificiality,
position in the market.
“plausible”
based
on
depending
on
their
Thus, while plaintiffs’ damages are
a
persistent
suppression
theory,
even
without allegations of specific transactions, damages are merely
“conceivable” -- and thus insufficiently pled -- if LIBOR was
allegedly being manipulated in different directions on different
days
and
positions
plaintiffs
in
the
fail
to
market.
Twombly,
Notwithstanding
plaintiffs’
LIBOR
imposed
II,
we
provide
the
550
contentions
same
details
U.S.
to
of
at
the
requirement
their
570
(2007).
contrary,
for
allegations of actual damages as we did in LIBOR I.
own
in
plausible
Plaintiffs
twice failed to meet that burden with regard to trader-based
claims, a fact in no way obscured by their current attempt to
mischaracterize
our
prior
opinions.
Such
a
manufactured
contradiction shall not be the basis for reconsideration of our
holding in LIBOR II.
Third, plaintiffs’ assertion that we overlooked In re Crude
Oil Commodities Futures Litigation, 913 F. Supp. 2d 41 (S.D.N.Y.
2012) (“Crude Oil II”), in reaching our decision in LIBOR II
fails as well.
controlling
As a threshold matter, Crude Oil II is not a
decision
and
is
therefore
granting a motion for reconsideration.
an
improper
basis
for
See Analytical Surveys,
Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012)
15
(quoting
Shrader,
70
F.3d
at
257)
(internal
quotation
marks
omitted) (“[R]econsideration will generally be denied unless the
moving party can point to controlling decisions or data that the
court
overlooked.”).
Moreover,
plaintiffs
applicability of Crude Oil II to this case.
manipulation
in
Crude
Oil
II,
like
the
misapprehend
the
It is true that the
alleged
manipulation here, was varying in direction.
trader-based
See Crude Oil II,
913 F. Supp. 2d at 61 (noting that the manipulation alleged
“increased and decreased prices at different times”).
But the
key difference is that the Crude Oil II manipulation was not
episodic
in
the
same
way
as
the
alleged
manipulation
here.
Whereas in Crude Oil II the Court could reasonably assume that
the
plaintiffs
artificiality
transacted
lasted
for
at
artificial
months
after
prices
the
ended,” the same cannot be presumed here.
because
alleged
“the
misconduct
Id.; see also In re
Amaranth Natural Gas Commodities Litig., 269 F.R.D. 366, 380
(S.D.N.Y. 2010) (suggesting that “because plaintiffs transacted
at artificial prices, injury may be presumed” (emphasis added)).
In this case, traders’ alleged manipulation of LIBOR operated on
a day-to-day basis such that manipulation on any given day would
have had no impact on the next day’s published LIBOR, and LIBOR
on some -- if not most -- days would have been unaffected by the
alleged manipulation.
Thus, as we indicated in LIBOR II, it was
16
necessary for plaintiffs to plead that they had transacted on
specific days when LIBOR was manipulated, a requirement that is
not abrogated by Crude Oil II.
In support of their motion for reconsideration, plaintiffs
have
relied
on
obviously
flawed
arguments,
implausibly
suggesting that this Court had forgotten its own opinions and
that the requirements that we outlined in those opinions were
unclear or inconsistent.
But before having put pen to paper --
or, as it happens, fingers to keyboard -- in this most recent
attempt
to
shift
the
blame
away
from
themselves
for
their
insufficient pleadings, plaintiffs’ counsel would have done well
to consider the words of William Shakespeare: “The fault . . .
is not in our stars, [b]ut in ourselves . . . .”
Shakespeare, Julius Caesar act 1, sc. 2.
William
The exchange-based
plaintiffs’ motion for reconsideration is hereby denied.
2.
Motion for Leave to Amend
Although
their
motion
for
reconsideration
must
fail,
plaintiffs have also made a parallel motion for leave to amend
their pleadings to include allegations of trader-based conduct.
They
claim
that
they
are
now
able,
“under
the
reasoning
of
[LIBOR II], [to] identify specific Eurodollar futures trades on
days” when plaintiffs can allege actual damages.
Exchange-Based
Pls.’ Mem. of Law in Supp. of Their Mot. for Recons. of the
17
Court’s Aug. 23, 2013 Mem. & Order (“Pls.’ Trader-Based Mem.”)
at
4.
While
the
“standard
for
granting
a
motion
for
reconsideration under Local Civil Rule 6.3 is strict,” Tiffany
(NJ) LLC v. Forbse, No. 11 Civ. 4976(NRB), 2012 WL 3686289, at
*5 (S.D.N.Y. Aug. 23, 2012), “[i]t is settled that the grant of
leave to amend the pleadings pursuant to Rule 15(a) is within
the
discretion
of
the
trial
court.”
Zenith
Radio
Corp.
v.
Hazeltine Research, Inc., 401 U.S. 321, 330 (1971); see also
Gurary
v.
Winehouse,
235
F.3d
792,
801
(2d
Cir.
2000)
(“A
district court has broad discretion in determining whether to
grant leave to amend . . . .”).
Given this broad grant of discretion -- as well as the fact
that the exchange-based plaintiffs have attempted to plead dayto-day, trader-based manipulation just once before, after the
publication of the Barclays settlements7 -- we will
evaluate
plaintiffs’ latest round of proposed amendments on the merits.
See In re Refco Capital
Litig.,
Nos.
06
Civ.
Mkts., Ltd. Brokerage Customer Sec.
643(GEL),
07
Civ.
8686(GEL),
07
Civ.
The posture of this motion stands in sharp contrast to the pleading history
of the antitrust claims when we denied plaintiffs leave to amend them. See
LIBOR II, 962 F. Supp. 2d at 624–27.
That denial followed numerous prior
efforts to plead these claims.
Thus, denial of leave to amend was
appropriate “given the competition to become interim lead counsel, which
revealed the experience of the competitors; the number of original complaints
that had been filed; and, the obvious motivation to craft sustainable first
amended complaints . . . [which] contained the strongest possible statement
of plaintiffs’ case based on the collective skills of plaintiffs’ counsel.”
Id. at 626. Moreover, not only were the efforts to amend the complaint with
regard to antitrust standing “wholly unwarranted,” but leave was denied
because such amendment would have been futile. Id. at 627.
7
18
8688(GEL),
2008
WL
4962985,
at
*2
(S.D.N.Y.
Nov.
20,
2008)
(finding that “[t]o the extent that plaintiffs’ submissions now
fill
[the]
lacuna”
identified
by
the
Court,
“it
would
be
shortsighted not to take these developments into account”).
As
we have maintained throughout this litigation, plaintiffs must
plead “(1) that they transacted in Eurodollar futures contracts
on
days
on
which
Eurodollar
futures
contract
prices
were
artificial as a result of trader-based manipulation of LIBOR,
[and]
(2)
injured.”
that
their
positions
were
such
that
LIBOR II, 962 F. Supp. 2d at 620–21.
they
were
We find that
finally, after numerous attempts, plaintiffs have met this twoprong test, but their ability to plead trader-based claims is
nonetheless subject to significant limitations.
First,
in
light
of
the
content
of
their
most
recent
submissions, plaintiffs may advance claims against only Barclays
and Rabobank.
Plaintiffs do not cite a single example from the
Rabobank settlements that implicate any other defendant banks.
With regard to the Barclays settlements, they reveal only that
“Barclays swaps traders communicated with swaps traders at other
Contributor Panel banks . . . about requesting LIBOR . . .
contributions that would be favorable to the trading positions
of Barclays swaps traders and/or their counterparts at other
financial institutions.”
Settlement Agreement Between Dep’t of
19
Justice, Criminal Div., and Barclays (June 26, 2012), Appendix
A,
¶
23;
requests
see
of
also
id.
traders
favorable LIBOR
¶
at
24
(“Barclays
other
swaps
Contributor
traders
Panel
banks
or EURIBOR submissions . . . [and]
made
for
Barclays
swaps traders received requests from traders at other banks for
favorable
LIBOR
submitters.”).
or
EURIBOR
These
submissions
statements
provide
from
no
Barclays
basis
to
rate
impute
Barclays’s actual conduct to other particular defendants, and
there is nothing in the settlement documents that indicate which
defendant banks, if any, allegedly submitted manipulated rates
along with Barclays.
are
alleged
to
“In situations where multiple defendants
have
committed
fraud,
the
complaint
must
specifically allege the fraud perpetrated by each defendant, and
‘lumping’
all
defendants
particularity requirement.”
*6.
together
fails
to
satisfy
the
Crude Oil I, 2007 WL 1946553, at
The bare allegations against the other defendant banks are
therefore
insufficiently
particular
to
meet
the
pleading
requirements of Twombly and Iqbal, and certainly those of Rule
9(b).
Thus, plaintiffs may not, at this stage, amend their
complaint
to
manipulation
include
against
allegations
defendant
of
banks
Rabobank.
20
day-to-day,
other
than
trader-based
Barclays
and
Second, plaintiffs must do more than merely allege that
they transacted on days when Barclays and/or Rabobank attempted
to manipulate LIBOR.
Although we have stated as much before, it
bears repeating: as private actors, plaintiffs have a distinct
and more demanding pleading burden than does the government.
See
LIBOR
I,
requirements
935
that
F.
Supp.
private
2d
at
plaintiffs
739
(“[T]here
must
satisfy,
are
but
many
which
government agencies need not.”); LIBOR II, 962 F. Supp. 2d at
621 n.18 (“Whereas a CEA claim brought by the CFTC is focused
wholly on defendants’ conduct, such that the injury suffered by
individual traders is irrelevant, a CEA claim brought by private
plaintiffs pursuant to section 22 is focused both on defendants’
conduct and on whether that conduct caused plaintiffs’ injury.”
(emphasis in original)).
Thus, it is not enough for plaintiffs
to assert that Barclays and Rabobank submitted artificial quotes
on
certain
dates;
in
addition,
those
quotes
must
have
potentially had an impact on the published LIBOR fix because
only then could plaintiffs have plausibly suffered damages.8
For example, in their reply brief, plaintiffs cite multiple dates when
Barclays allegedly submitted either a suppressed LIBOR figure that was
ultimately discarded for being too high or submitted an inflated figure that
was later discarded for being too low.
Claims based on these dates are
futile, as it is mathematically impossible for these submissions to have
impacted the LIBOR fix.
To illustrate: if a suppressed rate was among the
four highest submissions and thus discarded, then that bank’s “true”
submission would have been even higher and therefore also discarded. In such
a scenario, the manipulation had no impact, as the bank’s submission was not
factored into the calculation of LIBOR either way. Plaintiffs try to salvage
these claims by maintaining that “if the submitters from other banks
8
21
Third, plaintiffs may not include claims for trader-based
manipulation
that
fall
outside
the
January
2005–August
window, as they have repeatedly attempted to do.
2007
See, e.g.,
Pls.’ Trader-Based Reply at 4; Exchange-Based Pls.’ Supplemental
Mem. of Law Regarding Rabobank and in Further Supp. of Their
Mot. for Recons. of the Court’s Aug. 23, 2013 Mem. & Order
(“Pls.’ Rabobank Mem.”) at 6; Tr. of Oral Arg.
10:21–11:16.
Even putting aside the statute of limitations bars, see Part IV
infra, the scope of the motion for leave to amend was limited to
the time period before August 2007.
Letter at 1, 3.
established
See Pls.’ Sept. 10, 2013
It would be manifestly unjust and contrary to
practice
to
allow
plaintiffs
to
“shift
the
goalposts” and add amendments that fall outside the time period
that was the focus of the initial motion.
Cf. Knipe v. Skinner,
999 F.2d 708, 711 (2d Cir. 1993) (“Arguments may not be made for
the first time in a reply brief.”).
amend
their
manipulation
complaint
based
only
to
on
Therefore, plaintiffs may
include
claims
conduct
that
of
trader-based
allegedly
occurred
between January 2005 and August 2007.
manipulated LIBOR more aggressively” than Barclays or Rabobank on those
dates, then the rate itself would have actually been impacted.
ExchangeBased Pls.’ Reply Mem. of Law in Further Supp. of Their Motion for Recons. of
the Court’s Aug. 23, 2013 Mem. & Order (“Pls.’ Trader-Based Reply”) at 2
(emphasis added). But any assertion that other defendants manipulated their
submissions more aggressively than did Barclays or Rabobank is purely
speculative and has no basis in the settlement documents.
22
Once we apply the foregoing restrictions to plaintiffs’
proposed amendments, a limited number of examples of day-to-day,
trader-based manipulation remain9:
See Pls.’ Trader-Based Reply at 3–5; Pls.’ Sur-Reply of Oct. 15, 2013
(“Pls.’ Sur-Reply”) Ex. C; Pls.’ Rabobank Mem. at 3, 5–7.
9
23
Date
Bank
Direction of
Alleged
Request
9/29/05
Barclays
Upward
Upper
4/7/06
Barclays
Downward
Lower
6/30/06
Rabobank
Upward
Interquartile
8/17/06
Rabobank
Downward
Lower
9/1/06
Rabobank
Upward
Lower
10/26/06
Barclays
Downward
Lower
11/29/06
Rabobank
Upward
Lower
12/22/06
Barclays
Downward
Lower
2/28/0711
Barclays
Upward
Upper
7/30/07
Barclays
Upward
Upper
8/6/0712
Barclays
Upward
Upper
On dates when LIBOR was allegedly
Eurodollar futures contracts would have
been disadvantageous to be a seller; by
then contract prices would have increased
10
Quartile
Position
Plaintiff
Harmed
Atlantic
Trading
Atlantic
Trading &
303030
Trading
Atlantic
Trading
Atlantic
Trading
Atlantic
Trading &
303030
Trading
Atlantic
Trading
Atlantic
Trading
Atlantic
Trading
Atlantic
Trading
Atlantic
Trading
Atlantic
Trading
Plaintiff
Position10
Seller
Buyer
Seller
Buyer
Seller
Buyer
Seller
Buyer
Seller
Seller
Seller
manipulated upward, the price of
been suppressed and it would have
contrast, if LIBOR was suppressed,
and a net buyer would be harmed.
Defendants claim that plaintiffs fail to “allege that this purported
request was ever relayed to any submitter.” Defs.’ Sur-Reply Mem. of Law in
Further Opp’n to the Exchange-Based Pls.’ Motion for Recons. (“Defs.’ SurReply”) at 6 n.7.
However, the complaint implies that this request to
inflate LIBOR was heeded, as the recipient responded to the request by
stating that he would relay the message “right away.”
Exchange-Based Pls.’
Second Consolidated Am. Compl. (“Exchange-Based SAC”) ¶ 243.
11
Defendants concede that this date falls within the acceptable time period
for plaintiffs’ trader-based claims. See Defs.’ Sur-Reply at 6.
12
24
As circumscribed, the proposed amendments meet the twoprong test articulated by this Court in LIBOR I.
First, these
examples sufficiently demonstrate that plaintiffs traded on days
when LIBOR was impacted by trader-based manipulation.
Although
plaintiffs cannot be certain that LIBOR was artificial on the
aforementioned dates, as Barclays and Rabobank are but two of
sixteen submitters on a given day, it is certainly plausible
that the published fix deviated from what otherwise would have
been
“true”
LIBOR
as
a
result
of
those
banks’
conduct.13
Therefore, even if Barclays and Rabobank acted alone, plaintiffs
have
plausibly
pled
that
their
conduct
impacted
the
rate.
Second, on each of the dates listed, there is a named plaintiff
whose activity in the Eurodollar futures market was such that it
was plausibly harmed by the alleged manipulation.
As a result,
based on the test for actual damages that we have maintained
throughout this litigation, the addition of claims for traderbased manipulation that are as particular as the ones enumerated
in the chart above would not be futile.
We therefore grant
plaintiffs leave to add such claims to their complaint.
For example, on the first date listed above, September 29, 2005, Barclays
submitted a quote of 4.0700, the highest of any panel bank. See Pls.’ SurReply Ex. A.
On that same date, according to the Barclays settlement, a
trader requested an inflated submission.
Exchange-Based SAC ¶ 186.
Had
Barclays instead submitted a rate that was the average of the other fifteen
submissions, which we calculate to have been 4.0540, the published LIBOR
would have been lower: 4.0536 as opposed to the actual published rate of
4.0544. See Pls.’ Sur-Reply Ex. A.
13
25
In reaching this conclusion, the Court has considered and
rejected
defendants’
opposition
arguments.
For
instance,
defendants assert that even if Barclays and Rabobank were able
to
alter
LIBOR
submissions,
on
the
a
given
date
incremental
based
change
on
as
their
a
individual
result
of
the
manipulation would have been too small to actually impact the
published rate.
that
the
See Defs.’ Sur-Reply at 6 & n.11.
minimum
price
increment
for
It is true
Eurodollar
futures
contracts is one quarter of an interest rate basis point, and
none of plaintiffs’ examples suggest that Barclays or Rabobank
could have manipulated LIBOR one quarter of an interest rate
basis point on their own.
Futures:
The
Basics
See id.; Frederick Sturm, Eurodollar
at
2
(Sept.
2011),
available
at
http://www.cmegroup.com/trading/interest-rates/files/eurodollarfutures-the-basics.pdf.
However,
we
find
it
plausible
that
manipulation of less than the Eurodollar futures contract price
increment could have impacted the published LIBOR fix, and thus
the contract price itself, because of the use of rounding in
calculating the LIBOR fix.14
Thus, even if the magnitude of
For example, if LIBOR on a given date was 4.0010, when rounded to the
nearest one quarter of an interest rate basis point, it would become 4.0000,
and the contract price pegged to LIBOR would be 100 – 4.0000 = 96.0000. If
LIBOR was manipulated upward in this example by merely one twentieth of an
interest rate basis point (0.0005), then: LIBOR would be 4.0015; it would
round to 4.0025; and the contract price would be 100 – 4.0025 = 95.9975. If
a plaintiff was a net seller on that date, the manipulation would have caused
a loss, as it would have received a lower price for the contracts it sold.
14
26
Barclays’s and Rabobank’s alleged manipulation did not equal the
Eurodollar
futures
contract
price
increment,
plaintiffs
may
still have experienced a loss due to these defendants’ conduct.
Defendants further argue that none of “the hypothetical
minuscule changes to LIBOR” resulting from trader-based conduct
could have possibly impacted plaintiffs’ future behavior in such
a way as to have resulted in actual damages.
at 7.
Defs.’ Sur-Reply
However, it would be too demanding, at this stage of the
litigation, to require plaintiffs to plead all the ways in which
an
artificial
LIBOR
on
a
particular
date
caused
them
harm.
Instead, it is sufficient for plaintiffs to plead that they were
either net purchasers of contracts on days when LIBOR plausibly
was suppressed, even by a small amount, or that they were net
sellers on days when LIBOR plausibly was inflated -- put simply,
plaintiffs
may
plead
Eurodollar
futures
that
contracts
little by selling them.
they
on
either
certain
paid
dates
too
or
much
for
earned
too
That is what plaintiffs have done for
the dates listed above, and it is why we now find that the
possibility that they sustained some actual damages rises “above
the speculative level.”
Twombly, 550 U.S. at 555.
Accordingly,
claims based on plaintiffs’ activity in the Eurodollar futures
market that are pled with the level of specificity as those in
the chart above would not be ripe for dismissal.
27
Although
we
complaint
as
recovery;
chief
they
have
permitted
specified,
actually
among
they
them,
sustained
plaintiffs
still
face
plaintiffs
damages
as
a
to
many
must
amend
hurdles
their
before
demonstrate
result
of
that
defendants’
improper conduct, a burden that “pose[s] a serious challenge.”
LIBOR I, 935 F. Supp. 2d at 719.
However, with their latest
round of briefing, plaintiffs have finally articulated a claim
that trader-based manipulation at least plausibly caused them
actual injury.
Thus,
plaintiffs’
motion for leave to amend
their complaint is granted insofar as they may add allegations,
comporting
with
trader-based
the
standards
manipulation
outlined
against
above,
defendants
of
day-to-day,
Barclays
and
Rabobank based on conduct that occurred between January 2005 and
August 2007.
III.
Scienter
A.
Procedural Background
In LIBOR I, we found that the exchange-based plaintiffs
“adequately
alleged
that
Eurodollar
contracts
defendants
and
[plaintiffs] actual damages.”
that
manipulated
this
the
manipulation
price
of
caused
LIBOR I, 935 F. Supp. 2d at 719.
To reach this conclusion, we applied the Second Circuit’s fourpart test for pleading manipulation under the CEA: a plaintiff
must show “(1) that [defendant] had the ability to influence
28
market prices; (2) that [he] specifically intended to do so; (3)
that artificial prices existed; and (4) that [defendant] caused
the artificial prices.”
DiPlacido v. Commodity Futures Trading
Comm’n, 364 F. App’x 657, 661 (2d Cir. 2009) (citation omitted).
With regard to the second element -- scienter -- we determined
that
“plaintiffs
specifically
plausibly
intended
to
allege[d]
manipulate
that
the
price
defendants
of
Eurodollar
futures contracts,” as they were in a position to gain “concrete
benefits” from the manipulation.
715.
Further
evidence
of
LIBOR I, 935 F. Supp. 2d at
these
potential
concrete
benefits
emerged from the Barclays settlement documents, the contents of
which
“do
appearing
not
describe
profitable,
merely
but
a
rather
generalized
identify
interest
concrete
in
economic
benefits that defendants stood to gain from manipulating the
price of Eurodollar futures contracts.”
Id.
Thus, based on
plaintiffs’ “showing that the defendants had both motive and
opportunity”
contracts,
to
we
manipulate
found
that
the
prices
the
manipulation test was satisfied.15
of
scienter
Eurodollar
element
futures
of
the
Id.
We also recognized that, while plaintiffs were required to satisfy the
heightened pleading standards of Federal Rule of Civil Procedure 9(b), the
requirements were somewhat relaxed for their allegations of persistent
suppression of LIBOR. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d
87, 102 (2d Cir. 2007). “Although plaintiffs ha[d] not identified precisely
how each LIBOR quote from each defendant on each day during the Class Period
was or was not artificial,” we found that they could not have reasonably been
expected to do so at this early stage of litigation. LIBOR I, 935 F. Supp.
15
29
In LIBOR II, defendants moved for reconsideration of our
holding that plaintiffs had adequately pled scienter, and the
authority that defendants cited
regarding
whether
plaintiffs’
“rais[ed]
serious question[s]
allegations
LIBOR II, 962 F. Supp. 2d at 616.
[were]
sufficient.”
In particular, we expressed
concerns about plaintiffs’ argument that motive, for scienter
purposes, could be established at the pleadings stage based on
defendants’
holding
futures market.
Inc.,
Silver
significant
positions
in
the
Eurodollar
Id. at 616–17 (citing In re Commodity Exch.,
Futures
&
Options
Trading
Litig.,
No.
11
Md.
2213(RPP), 2012 WL 6700236 (S.D.N.Y. Dec. 21, 2012) (“Silver
Futures I”);16 Crude Oil I, 2007 WL 1946553).
Furthermore, we
rearticulated our view that we did not “accept the notion that
intentionally
submitting
intending
to
especially
given
false
manipulate
plaintiffs’
LIBOR
quotes
Eurodollar
allegations
is
tantamount
futures
that
to
contracts,”
“one
of
the
primary goals of each defendant in submitting false LIBOR quotes
was
to
protect
the
financial health.”
market’s
perception
of
that
defendant’s
Id. at 616 n.8.
2d at 716. Therefore, the relative lack of specificity was no impediment to
pleading persistent suppression throughout the Class Period.
The Second Circuit affirmed this decision.
In re Commodity Exch., Inc.
Silver Futures & Options Trading Litig., No. 13–1416–CV, 2014 WL 1243851 (2d
Cir. Mar. 27, 2014).
16
30
At
that
time,
we
denied
defendants’
motion
for
reconsideration without prejudice because there were issues that
had not been adequately briefed.
We advised defendants that, if
they decided to refile, they should address three questions.
First,
we
asked
for
more
extensive
briefing
time, we
whether
Id. at 618.
plaintiffs had adequately pled scienter.
on
At the
understood this question to have two subparts: (1)
whether plaintiffs’ allegation that defendants held positions in
the Eurodollar futures market was sufficient to plead scienter,
and (2) given the multiple motives that plaintiffs had pled for
defendants’
plaintiffs
actually
futures
actions
bear
in
motivated
market.
plaintiffs
had
in
suppressing
pleading
by
a
LIBOR,
that
defendants’
desire
to
n.13.
Id.
at
618
failed
to
properly
what
profit
in
Second,
plead
burden
actions
the
were
Eurodollar
assuming
scienter,
did
we
that
asked
whether plaintiffs’ informational handicaps should have lessened
their pleading burden.
Id. at 618–19.
And third, to the extent
that both previous questions were answered in the negative, we
sought briefing on whether this analysis should be applicable to
all defendants.
Id. at 619.
Defendants then refiled their
motion for reconsideration of the scienter issue on September
20, 2013, and the motion was fully briefed by October 17, 2013.
31
B.
Analysis
In their complaint, the exchange-based plaintiffs make two
sets
of
allegations
against
defendants:
(1)
persistent
suppression of LIBOR throughout the Class Period and (2) day-today, trader-based manipulation.
Both sets of claims are brought
pursuant to the Commodity Exchange Act (“CEA”), which prohibits
any person from “manipulat[ing] or attempt[ing] to manipulate
the price of any commodity in interstate commerce.”
13(a)(2).
7 U.S.C. §
To state a claim for manipulation under the CEA, a
plaintiff must plead that defendants “specifically intended” to
cause the artificiality that existed in the relevant market.
In
re Amaranth Natural Gas Commodities Litig., 730 F.3d 170, 183
(2d Cir. 2013).
This specific intent requirement, also known as
scienter, “may be alleged generally,” Fed. R. Civ. P. 9(b),
though plaintiffs must still allege facts that “give rise to a
strong
inference
of
scienter,”
In
re
Amaranth
Natural
Gas
Commodities Litig., 612 F. Supp. 2d 376, 384 (S.D.N.Y. 2009)
(“Amaranth II”) (emphasis in original) (quoting Tellabs, Inc. v.
Makor
Issues
&
Rights,
Ltd.,
551
U.S.
308,
323
(2007)).
Plaintiffs may plead scienter “either (a) by alleging facts to
show that defendants had both motive and opportunity to commit
fraud,
or
(b)
circumstantial
by
alleging
evidence
facts
of
32
that
conscious
constitute
strong
misbehavior
or
recklessness.”
Crude Oil I, 2007 WL 1946553, at *8 (quoting
Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006))
(internal quotation marks omitted); see also Laydon v. Mizuho
Bank,
Ltd.,
No.
12–cv–3419
(GBD),
2014
WL
1280464,
at
*5
(S.D.N.Y. Mar. 28, 2014) (same).
The
first
issue
is
whether
plaintiffs’
allegations
that
defendants held positions in the Eurodollar futures market are
sufficient to plead scienter under either prong.
they
are
not.
“[M]arket
power
by
itself
is
We find that
not
enough
to
establish a CEA violation.”
In re Commodity Exch., Inc. Silver
Futures
Litig.,
&
Options
Trading
No.
13–1416–CV,
2014
1243851, at *2 (2d Cir. Mar. 27, 2014) (“Silver Futures II”).
WL
A
theory of scienter that consists of “stating that defendants had
a large presence in the [relevant] market” amounts to only “a
generalized
intent.”
motive
.
.
.
[which]
is
insufficient
Crude Oil I, 2007 WL 1946553, at *8.
to
show
In order to
create a strong inference of scienter, allegations of market
presence must be coupled with pleading “specific actions which
exhibited an actual intent to bring about” the manipulation at
issue.
Silver Futures I, 2012 WL 6700236, at *10, aff’d, Silver
Futures II, 2014 WL 1243851.
Thus, plaintiffs’ allegation that
defendants held positions in the Eurodollar futures market is
33
not,
in
and
of
itself,
sufficient
to
plead
the
requisite
scienter under the CEA.
Having
found
it
insufficient
to
plead
merely
that
defendants held positions in the Eurodollar futures market, we
next
ask
what
defendants’
burden
LIBOR
plaintiffs
submissions
were
bear
in
actually
pleading
motivated
that
by
a
desire to profit from Eurodollar futures contracts.
For their
claim
(1)
to
survive,
defendants
were
plaintiffs
motivated
must
their
by
plead
desire
either:
to
profit
that
in
the
Eurodollar futures market and had the opportunity to influence
the price of contracts, or (2) that defendants consciously or
recklessly manipulated the price of Eurodollar futures contracts
through their LIBOR submissions.
We
pled
first
scienter
consider
via
the
whether
motive
plaintiffs
and
have
opportunity
sufficiently
prong.
The
complexity in applying this theory to the case at bar arises
because of plaintiffs’ allegation that all defendants had two
coexisting motives for submitting artificially low LIBOR figures
to
the
their
British
Bankers’
reputations
and
Association
appear
(“BBA”):
financially
profit in the Eurodollar futures market.
(1)
stable
to
and
protect
(2)
to
See Exchange-Based
Pls.’ Second Consolidated Am. Compl. (“Exchange-Based SAC”) ¶¶
73–78.
We recognize that plaintiffs are entitled to plead in
34
the
alternative
8(d)(2)–(3).
does
not
or
even
inconsistently.
Fed.
R.
Civ.
P.
However, the ability to plead in the alternative
obviate
the
need
for
each
of
allegations to be “plausible on its face.”
plaintiffs’
motive
Twombly, 550 U.S. at
570; see also TechnoMarine SA v. Jacob Time, Inc., No. 12 Civ.
0790(KBF),
2012
WL
2497276,
at
*2
(S.D.N.Y.
June
22,
2012)
(“While a plaintiff may assert claims in the alternative, doing
so does not relieve it of its burden to raise a reasonable
expectation that discovery will reveal evidence of illegality
for each claim asserted.”) (internal quotation marks omitted);
In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d 371,
406 (S.D.N.Y. 2001) (noting that the ability to plead in the
alternative “cannot be construed as an invitation to incoherent,
self-contradictory pleadings”).
Put simply, plaintiffs’ dual motive assertions as to all
defendants
parties
are
have
implausible.
Throughout
consistently
maintained
competitors outside the BBA.”
this
that
litigation,
“defendants
the
were
LIBOR I, 935 F. Supp. 2d at 688;
see also LIBOR II, 962 F. Supp. 2d at 627 (“[P]laintiffs have
identified
a
market
competitors.”).
defendants
would
in
which
defendants
are,
in
fact,
With this in mind, it is implausible that all
maintain
parallel
trading
positions
in
the
Eurodollar futures market across the Class Period and that those
35
positions,
in
turn,
motivated
their
daily
LIBOR
submissions.
There may be a single defendant, or some subset of defendants,
that held trading positions such that a suppressed LIBOR quote
both aided its reputation and generated profit for the bank in
the
Eurodollar
futures
market.
But
the
notion
that
all
defendants were positioned in such a way as to benefit from the
unidirectional movement of LIBOR at all times during the Class
Period is belied by the fact that they were competitors.
And if
defendants held different positions, then it is implausible that
their
motives
regarding
uniformly aligned.
the
Eurodollar
futures
market
were
The far “more likely explanation[]” is that,
to the extent all defendants engaged in parallel manipulation of
LIBOR, the conduct was motivated by reputational concerns, not
by
the
banks’
positions
Iqbal, 556 U.S. at 681.
in
the
Eurodollar
futures
market.
Thus, plaintiffs have failed to plead
specific intent under the motive and opportunity prong.
Given
the
implausibility
of
plaintiffs’
motive
allegations, we now consider whether plaintiffs have adequately
pled scienter through the conscious misbehavior or recklessness
prong.
“Where motive is not apparent, it is still possible to
plead scienter by identifying circumstances indicating conscious
behavior
by
circumstantial
the
defendant,
allegations
though
must
36
be
the
strength
correspondingly
of
the
greater.”
Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001).
scienter
based
“plaintiffs
on
must
conscious
allege
misbehavior
facts
supporting
or
an
To plead
recklessness,
inference
that
defendants deliberately or recklessly engaged in illegal conduct
. . . [or] conduct that is highly unreasonable and ‘an extreme
departure from the standards of ordinary care . . . to the
extent that the danger was either known to the defendant or so
obvious that the defendant must have been aware of it.’”
In re
BISYS Sec. Litig., 397 F. Supp. 2d 430, 441 (S.D.N.Y. 2005)
(quoting Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir. 2000)).
“Thus, an express allegation of deliberate misconduct can be
sufficient to plead scienter.”
Amaranth II, 612 F. Supp. 2d at
383.
In LIBOR II, we rejected plaintiffs’ assertion that they
had
pled
scienter
through
evidence
misbehavior or recklessness.
of
defendants’
conscious
See LIBOR II, 962 F. Supp. 2d at
615 n.7 (finding that plaintiffs did not satisfy the conscious
misbehavior or recklessness standard because the “only alleged
action
of
misbehavior
defendants
or
that
recklessness’
might
is
their
qualify
alleged
as
‘conscious
submission
of
artificial LIBOR quotes to the BBA . . . [and] merely submitting
artificial LIBOR quotes does not by itself indicate an intent to
37
manipulate Eurodollar futures contract prices”).
However, upon
further reflection, we now reach a different conclusion.
First,
defendants
plaintiffs
have
“consciously
(documenting
this
than
adequately
pled
by
submitting
artificial
misbehaved”
LIBOR quotes to the BBA.
121
more
that
See, e.g., Exchange-Based SAC ¶¶ 72–
conduct
under
the
headline
Misreported LIBOR During The Class Period”).
“Defendants
Second, plaintiffs
have also pled that the “danger” of submitting artificial LIBOR
quotes -- the manipulation of the price of Eurodollar futures
contracts
--
was
either
known
to
the
defendant
obvious that they must have been aware of it.
449
(“Each
Defendant
well
knew,
banks
or
so
See, e.g., id. ¶
from
its
financial
sophistication and its familiarity with CME Eurodollar futures
contracts . . .
that such contracts traded with reference, and
settled to, USD-LIBOR.”).
defendants
acted
Eurodollar
futures
defendants,
with
We still find it implausible that all
the
common
contracts,
regardless
of
but
their
motive
it
is
of
profiting
plausible
positions
in
the
that
off
all
market,
manipulated LIBOR for reputational purposes while knowing that
such
conduct
would
impact
the
price
of
Eurodollar
futures.
Therefore, we find that plaintiffs have adequately pled scienter
based on a conscious misbehavior or recklessness theory.
38
Defendants argue that knowledge is not enough.
See Reply
Mem. of Law in Further Supp. of Mot. for Recons. of Mar. 29,
2013 Order on Mot. to Dismiss at 4; Tr. of Oral Arg. 63:12–13
(“[M]ere knowledge of an effect is not enough to satisfy the
intent
requirement.”).
knowledge,
can
We
transform
manipulation.”
1243851, at *2.
sense:
legitimate,
a
that
“only
legitimate
intent,
transaction
not
into
Amaranth I, 587 F. Supp. 2d at 539 (S.D.N.Y.
2008) (emphasis added);
makes
agree
Silver Futures II, 2014 WL
Such an intent requirement in that context
when
a
see also
a
defendant’s
plaintiff
should
conduct
have
a
is
greater
potentially
burden
demonstrating that the conduct was actually manipulative.
in
But
this case does not concern defendants’ legitimate transactions.
Because
the
conduct
alleged
has
no
legitimate
purpose,17
plaintiffs need not demonstrate that defendants acted with bad
intent to distinguish the complained of conduct from potentially
lawful
activity.
allege
that
Rather,
defendants
it
may
suffice
for
plaintiffs
to
knowingly
engaged
in
unquestionably
illegitimate conduct while fully comprehending the consequences
in the market.
See In re Natural Gas Commodity Litig., 358 F.
This Court has noted that the submission of false LIBOR quotes alleged by
plaintiffs, regardless of the motive, is not legitimate activity. See LIBOR
I, 935 F. Supp. 2d at 716 (“[T]here is no question that the manipulation of
LIBOR alleged in the amended complaint . . . was not a legitimate part of how
LIBOR was fixed or Eurodollar contracts were priced.”) (internal quotation
marks omitted).
17
39
Supp. 2d 336, 344–45 (S.D.N.Y. 2005) (finding that allegations
that
defendants
knowingly
delivered
false
reports
to
trade
publications were sufficient to state a CEA claim).
In sum, plaintiffs have pled that: (1) defendants knew
that
they
were
submitting
inaccurate
LIBOR
quotes,
(2)
defendants understood the impact on Eurodollar futures contract
prices from doing so, and (3) there is no conceivably legitimate
purpose for submitting inaccurate LIBOR quotes.
these
three
factors
demonstrate
misbehavior or recklessness.”
pled
scienter
as
to
all
Taken together,
defendants’
“conscious
As a consequence, plaintiffs have
defendants
under
the
CEA,
and
defendants’ motion for reconsideration is denied.18
IV.
Statute of Limitations
The
question
of
whether
some
of
the
exchange-based
plaintiffs’ CEA claims are barred by the applicable statute of
limitations has been an issue since the earliest motions to
dismiss, occupying forty pages of our opinion in LIBOR I.
summarize,
at
the
outset,
we
determined
that
a
To
“discovery
accrual rule” was applicable to claims under the CEA wherein
“discovery of the injury, not discovery of the other elements of
a claim, is what starts the clock.”
Koch v. Christie’s Int’l
Because we find that plaintiffs have adequately pled scienter, we need not
address the question of whether informational handicaps lessen plaintiffs’
pleading burden.
18
40
PLC, 699 F.3d 141, 149 (2d Cir. 2012) (quoting Rotella v. Wood,
528 U.S. 549, 555 (2000)) (internal quotation marks omitted).
Applying the corollary doctrine of “inquiry notice,” a court
must “ask at what point the circumstances were such that they
‘would
suggest
to
[a
person]
of
ordinary
probability that she has been defrauded.’”
Supp.
2d
at
698
(quoting
Koch,
699
F.3d
intelligence
the
LIBOR I, 935 F.
at
151).
After
reviewing the numerous articles which suggested that LIBOR had
been at artificial levels since the start of the Class Period,
we concluded that the plaintiffs were on inquiry notice no later
than May 29, 2008.
Utilizing that date and the applicable two-year statute of
limitations under the CEA, we divided the
Class Period
into
three segments: (1) the start of the Class Period until the date
of inquiry notice, i.e. August 2007 to May 29, 2008 (“Period
1”); (2) the day after inquiry notice was triggered until two
years and one day before the complaint was filed, i.e. May 30,
2008 to April 14, 2009 (“Period 2”); and (3) two years before
the filing of the complaint through the end of the Class Period,
i.e. April 15, 2009 to May 2010 (“Period 3”).
We found that
claims based on contracts entered into during Period 1 were time
barred,
having not been brought within two years of inquiry
notice,
whereas
claims
based
on
41
contracts
purchased
during
Period 3 had been brought within two years of inquiry notice and
were therefore timely.19
Id. at 711–12.
As for those claims
based on contracts purchased during Period 2, we stated that we
could not reach a decision based on the information available to
us
at
that
time.
exchange-based
Our
decision
plaintiffs’
in
claims
LIBOR
that
I
also
they
rejected
could
have
reasonably relied on the reassurances of the BBA and defendants
themselves to dissipate their duty of inquiry, as well as their
assertion that the statute of limitations under the CEA should
be tolled due to fraudulent concealment.
See id. at 705, 709.
In LIBOR II, we observed that defendants in their briefs
seemed to argue that we should dismiss “persistent suppression”
claims
based
Period 1.
on
contracts
entered
into
at
times
LIBOR II, 962 F. Supp. 2d at 624.
other
than
Thereafter, we
granted defendants’ request for leave to make a renewed motion
to dismiss Period 2 claims.
That motion, to which we will soon
turn, was filed on September 20, 2013.20
Although inquiry notice was triggered on May 29, 2008, we found that
because “a plaintiff cannot discover his injury until he has been injured,”
Period 3 plaintiffs “could not have been on inquiry notice of their claims
any earlier than the date on which they purchased their contracts.” Id. at
712.
Thus, claims based on contracts purchased on or after April 15, 2009
were not time barred.
19
In LIBOR I, we granted plaintiffs leave to add allegations from the
Barclays settlement with respect to trader-based claims in the context of the
statute of limitations issue.
LIBOR I, 935 F. Supp. 2d at 709–10.
The
briefing on the current motion is not addressed to trader-based claims but to
broader claims of persistent suppression of LIBOR. Plaintiffs did not seek,
20
42
However, before we resolve the motion properly before the
Court, we will address plaintiffs’ attempt, without the support
of a timely motion, to reargue our decision in LIBOR I on Period
1 claims.
Apart from any procedural flaw, of which there are
several, plaintiffs’ effort does not approach the substantive
standard to sustain a motion to reargue.
At the outset, we have
no intention of addressing plaintiffs’ recycled arguments that
we resolved in LIBOR I.
While they claim to have amended their
pleading, again without leave, “to include many new allegations
related to Period 1,” plaintiffs, in reality, have proffered
just three new articles for the Court’s consideration.
Mem. of
Law in Opp’n to Defs.’ Renewed Mot. to Dismiss the ExchangeBased Pls.’ Period 2 CEA Claims (“Pls.’ Period 2 Opp’n”) at 6.
These
few
plaintiffs’
articles
do
not
interpretations
change
to
the
our
calculus:
contrary,
each
despite
of
these
articles references the ongoing questions about the reliability
of LIBOR,21 and they certainly would not, in the context of the
and we did not grant, leave to reargue our decision from LIBOR I that claims
arising from contracts purchased during Period 1 were time barred.
Rosa M. Abrantes-Metz et al., LIBOR Manipulation?, Aug. 4, 2008, at 2
(noting that despite their conclusion that “the evidence found is
inconsistent with an effective manipulation of [LIBOR],” “some questionable
patterns exist with respect to the banks’ daily Libor quotes”); Terry Belton
et al., The Outlook for Libor, JPMorgan, May 16, 2008, at 1 (issuing a report
for JPMorgan Chase which described LIBOR as a “besieged benchmark” and
referencing the widely held belief that LIBOR was “too low relative to actual
bank borrowing rates due to systemic bias on the part of contributors” to the
LIBOR panel); Jacob Gyntelberg & Philip Wooldridge, Interbank rate fixings
during the recent turmoil, BIS Quarterly Review, Mar. 3, 2008, at 59
21
43
surfeit
of
publicly
manipulation
during
available
Period
1,
investor’s duty of inquiry.
700–04
(reviewing
the
information
have
suggesting
dissipated
an
LIBOR
ordinary
See LIBOR I, 935 F. Supp. 2d at
multitude
inquiry notice during Period 1).
of
articles
that
triggered
There is, however, one aspect
of plaintiffs’ memorandum addressed to our decision in LIBOR I
that is worthy of further discussion.
Apparently
not
fully
appreciating
the
consequences
for
their case on the merits, plaintiffs suggest that the articles
relied upon by this Court focused only on false LIBOR reports,
rather than on manipulated Eurodollar futures contracts prices,
and that those articles were therefore insufficient to place
plaintiffs on inquiry notice.
Pls.’ Period 2 Opp’n at 5 n.5.
However,
directly
that
the
LIBOR
fix
impacts
the
price
of
Eurodollar futures contracts is not only a fact, but is also the
centerpiece of plaintiffs’ CEA claims.
See, e.g., Exchange-
Based SAC ¶ 182 (citing evidence that several banks manipulated
LIBOR
with
“the
express
purpose
of
manipulating
Eurodollar
futures”); id. ¶ 271 (“Each Defendant knew that such extensive
misreporting
contract
[of
LIBOR]
prices.”).
was
manipulating
Moreover,
Eurodollar
plaintiffs’
futures
complaint
acknowledges that an ordinary investor would have made a direct
(acknowledging that there were “questions about the reliability of
fixings purported to represent conditions” in the interbank markets).
44
rate
connection between LIBOR and the price of a Eurodollar futures
contract.
See, e.g., id. ¶ 159 (claiming that a change in LIBOR
would have communicated information to “the reasonable person of
ordinary
intelligence
who
was
thinking
Eurodollar
futures”).
Thus,
defendants
must
articles
produce
of
plaintiffs’
that
investing
argument
explicitly
in
that
discuss
Eurodollar futures manipulation and not simply possible LIBOR
manipulation would, if accepted, undermine the claims asserted
in the complaint and is utterly meritless for the purposes of
our statute of limitation analysis.
In
short,
“when
a
decision
should
court
generally
be
has
ruled
adhered
to
on
by
an
issue,
that
court
that
in
subsequent stages of the same case unless cogent and compelling
reasons militate otherwise.”
Johnson v. Holder, 564 F.3d 95, 99
(2d Cir. 2009) (quoting United States v. Quintieri, 306 F.3d
1217, 1225 (2d Cir. 2002)) (internal quotation marks omitted).
Here, the arguments offered by plaintiffs are less than cogent
and far from compelling.
Having not been persuaded that our
decision in LIBOR I was incorrect, we reaffirm our decision that
claims brought by plaintiffs based on contracts purchased during
Period 1 are time barred under the CEA.
We turn now to the motion that is properly before this
Court: whether exchange-based plaintiffs’ claims arising out of
45
contracts purchased between May 29, 2008 and April 14, 2009 -during Period 2 -- are timely.
Based on “the totality of the
objective evidence,” we find that they are not.
Woori Bank v.
Merrill Lynch, 923 F. Supp. 2d 491, 497 (S.D.N.Y. 2013).
When we declined to dismiss Period 2 claims in LIBOR I, we
assumed
that
Period
2
investors
had
not
purchased
contracts
earlier than Period 2 and therefore “may not have had reason to
follow LIBOR-related news.”
LIBOR I, 935 F. Supp. 2d at 712.
However,
there
dispute
actually
any
contracts
during
is
now
some
plaintiffs
during Period 1.
Period
as
to
who
purchased
who
had
2
not
whether
there
Eurodollar
previously
are
futures
transacted
Defendants maintain that “all named Plaintiffs
traded during Periods 1 and 2, and were thus on inquiry notice
as of May 29, 2008.”
Mem. of Law in Supp. of Defs.’ Renewed
Mot. to Dismiss the Exchange-Based Pls.’ Period 2 CEA Claims at
9.
Defendants
whether
there
hypothetical
or
during Period 2.
are
correct
exists
an
a
unnamed
that
named
our
analysis
plaintiff,
plaintiff,
that
must
not
first
hinge
on
merely
a
transacted
See In re Initial Public Offering Sec. Litig.,
214 F.R.D. 117, 122–23 (S.D.N.Y. 2002) (“If the named plaintiffs
have no cause of action in their own right, their complaint must
be dismissed, even though the facts set forth in the complaint
may show that others might have a valid claim.”) (emphasis in
46
original)
(citation
counter
Plaintiffs
assigned
and
that
their
claims
in
Eurodollar
transacted
internal
quotation
“several
to
[named]
futures
marks
omitted).
individual
funds,
which
Plaintiff
Metzler,
only
contracts
after
May
2008.”
Pls.’ Period 2 Opp’n at 22; see also Tr. of Oral Arg. 29:3–15.
We need not resolve the factual question of whether there are,
in fact, any named plaintiffs who first transacted during Period
2 since, in any event, all claims based on contracts purchased
during Period 2 would be time barred.
We address first those plaintiffs who purchased Eurodollar
futures contracts in Period 2 after also having done so during
Period
1.
We
begin
with
the
proposition
that
it
would
be
nonsensical to assume that the minds of Period 1 purchasers -who were on inquiry notice -- were wiped clean and became blank
slates before they transacted against during Period 2.
See Shah
v. Meeker, 435 F.3d 244, 252 (2d Cir. 2006) (finding that it was
unreasonable for a plaintiff to rely on the price of stock after
he was already on inquiry notice of the company’s fraudulent
practices).
Thus, for their claims to survive, plaintiffs who
purchased contracts in Period 1 have the burden of demonstrating
that
their
duty
to
inquire
dissipated;
defendants
are
not
required to prove that the information made public during Period
2 reached some critical mass to create inquiry notice anew.
47
To
determine
whether
plaintiffs’
duty
to
inquire
dissipated during Period 2, we examine (1) the significance of
the disclosed problems, (2) how likely it is that those problems
are
of
a
recurring
nature,
and
(3)
how
substantial
reassurances announced to avoid their recurrence.
are
the
LC Capital
Partners, LP v. Frontier Ins. Grp., Inc., 318 F.3d 148, 155 (2d
Cir. 2003).
Each of these prongs supports the conclusion that
inquiry notice did not dissipate.
First, there is no question
that
significant:
the
alleged
problems
were
as
plaintiffs
themselves plead in their complaint, “given the vast universe of
financial instruments LIBOR impacts, ‘even a small manipulation’
of the rate ‘could potentially distort capital allocations all
over the world.’”
Abrantes-Metz
&
Exchange-Based SAC ¶ 12 (quoting Rosa M.
Albert
D.
Metz,
How
Far
Can
Distinguishing Explicit from Tacit Collusion?
the
Libor
Setting,
CPI
Antitrust
Screens
Go
in
New Evidence from
Chronicle,
March
2012).
Second, as illustrated below, much of the information published
during
Period
2
suggested
the
problems
with
LIBOR
that
had
emerged during Period 1 would likely be “of a recurring nature”
because financial authorities were doing very little to prevent
the continued manipulation of the rate:
48
Author
Michael
Mackenzie &
Gillian Tett
Gavin Finch
& Ben
Livesey
Laurence
Norman
Justin T.
Wong
Title22
“Libor Remarks Fail
to Put Unease to
Rest”
“Libor Overhaul May
Fail to Restore
Confidence in Rate”
“Changes to Libor
Rejected -- U.K.
Bankers Group
Sticks to
Definition of Rate
Benchmark”
Publication
Date
Financial
Times
June 2, 2008
Bloomberg
June 11, 2008
Wall Street
Journal
August 6, 2008
North
Carolina
Banking
Institute23
February 22,
2009
LIBOR Left in
Limbo; A Call for
More Reform
Third, to the extent that there were any reassurances,
they were not substantial enough to assuage the concerns of an
ordinary investor.
In addition to the aforementioned articles,
all of which criticized the inaction of the BBA in addressing
the
potential
ongoing
manipulation
of
LIBOR,
other
articles
There are numerous quotes in these articles referencing the inaction of key
actors in preventing ongoing LIBOR manipulation, but we believe that the
titles of these articles sufficiently convey this point.
22
While we recognize that the North Carolina Banking Institute is not as
readily available a news source as is the Financial Times, Bloomberg, or the
Wall Street Journal, we cite it here because plaintiffs quote the abovementioned article from that journal in their complaint.
See Exchange-Based
SAC ¶¶ 125, 149. In the article, the author asserts that “[t]he BBA’s recent
revisions to LIBOR did not fundamentally change its calculation and do not
address lingering questions about contributing banks’ incentives to provide
false information.”
Justin T. Wong, LIBOR Left in Limbo; A Call for More
Reform, 13 N.C. Banking Inst. 365, 383 (2009).
23
49
expressed serious doubts that the calculation of the rate was
going to change in a significant way:
Author
Title
“British Group
Carrick
Largely
Mollenkamp &
Maintains Libor
Laurence Norman
Procedures”
“Libor Revamp
Is Urged by
Adam Bradbery
Money-Market
Group”
“2nd UPDATE:
Laurence Norman BBA Rejects Key
& Deborah Lynn
Proposals For
Blumberg
Libor Process
Change”
Publication
Date
Wall Street
Journal
May 31, 2008
Wall Street
Journal
July 11, 2008
Dow Jones
International
News
August 5, 2008
Despite the existence of these articles, plaintiffs argue
that
inquiry
specific
notice
dissipated
protestations
of
due
to
innocence”
“the
and
BBA’s
numerous,
defendants’
“own
statements of reassurance.”
Pls.’ Period 2 Opp’n at 14–15.
This argument is unavailing.
The popular press during Period 2
recognized that these reassurances rang hollow in light of the
BBA’s continued failure to implement meaningful changes to the
management of LIBOR, and there is no reason to believe that a
reasonable
investor
statements
any
during
credence.
Period
2
Plaintiffs’
would
have
selective
given
citations
the
to
statements by the BBA and defendants do not obscure the fact
that,
when
confronted
with
the
50
BBA’s
inaction,
an
ordinary
investor’s concerns about the accuracy of LIBOR would not have
dissipated, but endured.
Furthermore, plaintiffs’ contention that their situation
is “virtually identical” to that of the plaintiffs in In re SCOR
Holding
(Switzerland)
AG
Litigation,
(S.D.N.Y. 2008), is unpersuasive.
537
F.
Supp.
2d
556
Pls.’ Period 2 Opp’n at 23;
see also Tr. of Oral Arg. 31:23–32:23.
In SCOR Holding, the
plaintiffs were found to have been put on inquiry notice of the
alleged
under-reserving
practices
of
Converium
Holding
(“Converium”), a reinsurance company, on November 19, 2002.
AG
See
In re Converium Holding AG Sec. Litig., No. 04 Civ. 7897(DLC),
2006
WL
3804619,
defendants
in
at
that
*17
case
(S.D.N.Y.
argued
Dec.
that
28,
all
2006).
The
individuals
who
purchased Converium stock after the inquiry notice date should
have been excluded from the proposed plaintiff class because
they could no longer have reasonably relied on the company’s
representations of financial health.
Supp. 2d at 581–82.
reports”
had
“address[ed]
However, the court found that a “flood of
indicated
to
problems”
the
which
market
had
that
given
Converium
rise
had
to
inquiry
notice for the pre-November 19, 2002 stock purchasers.
Id. at
582.
the
See SCOR Holding, 537 F.
As a result, later investors could have reasonably relied
on the company’s representations to the market.
51
Id. at 582–83.
Here,
contrary,
there
the
is
no
publicly
such
“flood
available
of
reports.”
information
during
To
the
Period
2
reinforced the notion that LIBOR was subject to manipulation.
In addition to all the articles previously listed, in June 2008,
Dow Jones published an article indicating that 82% of banks,
brokers,
and
traders
surveyed
by
The
Financial
Markets
Association agreed with the view that LIBOR did not reflect
actual money market rates.24
A few months later, in September
2008, the Wall Street Journal reported that “Libor’s reliability
became
an
issue
again”
financial benchmarks.25
as
LIBOR
dipped
well
below
other
And thereafter, as the financial crisis
deepened and LIBOR spiked, news outlets continued to report that
LIBOR
was
“stabilizing
considered normal.”26
at
rates
that
can’t
in
any
way
be
While the SCOR Holding plaintiffs were
confronted with convincing reports that could have quelled their
distrust of the defendants, an ordinary investor here would have
begun Period 2 as a skeptic who thereafter encountered articles
that
only
increased
his
doubts.
Thus,
exchange-based
plaintiffs’ reliance on SCOR Holdings is misplaced, and based on
Adam Bradbery, Market Participants Doubt Libor Rates Reflect Market Rates,
Dow Jones & Co., June 19, 2008.
24
Carrick Mollenkamp, Libor’s Accuracy Becomes Issue Again -- Questions on
Reliability of Interest Rate Rise Amid Central Banks’ Liquidity Push, Wall
St. J., Sept. 24, 2008.
25
David Gaffen, Stabilization, Not Normalization, For the Historically High
Libor, Wall St. J., Nov. 18, 2008.
26
52
the three-part test of LC Capital Partners, the duty to inquire
for Period 2 plaintiffs who were also purchasers during Period 1
did not dissipate.
To the extent that there are named plaintiffs who first
transacted during Period 2 -- a disputed proposition, see supra
-- the same analysis would apply.
While Period 2 plaintiffs
“may not have had reason to follow LIBOR-related news” during
Period
1,
they
information
nevertheless
suggesting
the
would
probability
artificiality after May 29, 2008.
712.27
The
publicly
have
available
been
of
confronted
LIBOR’s
with
continued
LIBOR I, 935 F. Supp. 2d at
information
during
Period
2
referenced the fact that LIBOR’s accuracy had come into question
during Period 1, so later purchasers would have been aware of
the preexisting issues with the rate.28
When this information
about probable artificiality during Period 1 is combined with
the chorus of articles discussing the BBA’s general inaction
during Period 2, the logical conclusion for an ordinary Period 2
Our observations in LIBOR I regarding the timing of plaintiffs’ awareness
of LIBOR-related news were made in broad strokes given the stage of this
litigation.
To be sure, it is quite possible that sophisticated entities
considering the purchase of Eurodollar futures contracts worth approximately
$1,000,000 each would have conducted research in advance of purchase.
As
such, a Period 2 purchaser may have been expected to follow LIBOR trends and
news articles during Period 1.
27
See, e.g., Alistair Osborne, Former MPC Man Call for Libor to Be Replaced,
Telegraph, Sept. 11, 2008 (referencing the fact that suggestions that “some
lenders may have understated borrowing costs” first emerged in March 2008);
Mollenkamp, Libor’s Accuracy Becomes an Issue Again, supra note 25, (“Earlier
this year, Libor appeared to be sending false signals.”).
28
53
purchaser
was
that
LIBOR
remained
subject
to
manipulation.
Furthermore, during Period 2, the spread between LIBOR and the
Federal
Reserve
Eurodollar
Deposit
Rate,
a
number
which
was
publicly available, became increasingly and uncharacteristically
negative.
This is the same data on which plaintiffs rely in
their complaint to support their conclusion that the banks were
collectively suppressing LIBOR.
&
figs.
3–19.
evidence
to
This
a
See Exchange-Based SAC ¶¶ 90–99
spread
Period
2
would
purchaser
have
provided
that
LIBOR
additional
was
being
manipulated.
At oral argument, plaintiffs proffered three articles in
particular that they contend should dissuade us from finding a
limitations bar despite the foregoing evidence.
Arg.
33:8–10,
articles
contain
plaintiffs.
they
were
34:12–19,
44:12–14.
elements
that
See Tr. of Oral
However,
undermine
all
their
of
these
value
to
Two of the articles explicitly acknowledge that
published
at
least
partially
in
widespread belief that LIBOR was artificial.29
response
to
the
As for the third
article, its very title -- “Recent Concerns Regarding LIBOR’s
Metz et al., LIBOR Manipulation?, supra note 21, at 2 (framing the paper as
an extension of the study published in the Wall Street Journal on May 29,
2008, which alleged the “reporting [of] unjustifiably low borrowing costs for
the calculation of the daily Libor benchmark”); International Monetary Fund,
Global Financial Stability Report, Oct. 2008, at 76–77 (noting that “the
integrity of the U.S. dollar LIBOR fixing process has been questioned” and
that “[m]arket observers have been expressing concerns that some LIBOR
contributors submit rates that are too low”).
29
54
Credibility”
--
contradicts
plaintiffs’
were not on inquiry notice.30
contention
that
they
Moreover, this third article was
published on May 20, 2008; this date falls at the end of Period
1, the time when the drumbeat of suggestions that LIBOR was
artificial had grown the loudest.
at
700
(detailing
the
many
See LIBOR I, 935 F. Supp. 2d
“articles
published
in
prominent
national news sources” around this time which suggested that
LIBOR was at artificial levels).
of
the
other
literature
When considered in the context
published
at
the
time,
plaintiffs’
proffered articles would have been insufficient to change the
view of an ordinary investor that LIBOR was probably being set
at artificial levels.
In sum, we acknowledged in LIBOR I, on the basis of the
record
then
determine
before
whether
us,
the
that
we
claims
were
of
not
in
plaintiffs
a
position
who
to
purchased
Eurodollar futures contracts during Period 2 were time barred.
In order to decide, we needed three questions answered: (1) when
was inquiry notice triggered, (2) whether plaintiffs actually
inquired within two years of the date of inquiry notice, and (3)
whether the complaint was filed within two years of the date on
which a person of ordinary intelligence,
in the exercise of
Samuel Cheun & Matt Raskin, Recent Concerns Regarding LIBOR’s Credibility,
Federal Reserve Bank of New York, May 20, 2008.
30
55
reasonable diligence, would have discovered his injury.
712.
Now, the answers to these questions are clear.
Id. at
First, for
plaintiffs who initially purchased contracts during Period 1,
inquiry notice never dissipated, and their duty to inquire was
therefore
triggered
on
May
29,
2008.
For
anyone
who
first
transacted during Period 2, the publicly available literature at
the time of purchase would have made clear that LIBOR was, in
all probability, still artificial.
Thus, inquiry notice was
triggered for these purchasers before April 15, 2009, i.e. more
than
two
years
complaint.
before
exchange-based
plaintiffs
filed
their
Second, there is no indication that any plaintiff
actually inquired within two years of the time when his duty to
do so arose.
And third, the complaint was filed on April 15,
2011, more than two years after any Period 2 plaintiff would
have
discovered
diligence.
made
by
his
injury
had
he
exercised
reasonable
Therefore, all CEA claims arising from purchases
plaintiffs
during
Period
2
are
time
barred,
and
defendants’ motion to dismiss those claims is granted.
V.
Contract and Unjust Enrichment Claims
A.
Procedural Background
In LIBOR I, we decided that “considerations of judicial
economy,
should
convenience,
decline
to
fairness,
exercise
and
comity
supplemental
56
suggest
that
jurisdiction
we
over
plaintiffs’ as-yet-unspecified-state-law claim.”
F. Supp. 2d at 735.
parties
asserted
LIBOR I, 935
However, by the writing of LIBOR II, both
that
this
Court
had
jurisdiction
over
OTC
plaintiffs’ state-law claims under the Class Action Fairness Act
of 2005, and we agreed.
LIBOR II, 962 F. Supp. 2d at 628.
OTC
plaintiffs then sought leave to reassert their unjust enrichment
claim and to plead a new claim for breach of contract based on
defendants’ alleged breach of the implied duty of good faith and
fair dealing.
Id.
We granted plaintiffs leave to amend their pleadings to
include both unjust enrichment and contract-based claims under
state
law,
with
the
understanding
that
this
grant
did
not
preclude defendants from moving to dismiss these claims once
asserted.
complaint
See
id.
accordingly
at
631,
on
635.
September
Plaintiffs
10,
2013,
amended
and
their
defendants
responded with the instant motion to dismiss the contract and
unjust enrichment claims on November 26, 2013.
B.
Analysis
OTC plaintiffs’ complaint lists five defendant banks that
entered into LIBOR-based contracts with named plaintiffs: UBS,
Deutsche Bank, Barclays, Citibank, and Credit Suisse.
See OTC
Pls.’
378–87.
Second
Consolidated
Am.
Compl.
(“OTC
SAC”)
¶¶
Although only these five banks were counterparties to contracts
57
entered into by named plaintiffs, OTC plaintiffs brought breach
of contract and unjust enrichment claims against all defendant
banks.
See
id.
¶¶
388–98.
We
find
that
plaintiffs
have
sufficiently pled their claims as against those defendant banks
with which named plaintiffs directly transacted (“counterparty
banks”), but that claims against those banks with which named
plaintiffs did not transact (“non-counterparty banks”) must be
dismissed.
Thus, defendants’ motion to dismiss is granted in
part and denied in part.
1.
Non-Counterparty Banks
Plaintiffs endeavor to state contract and quasi-contract
claims against non-counterparty banks (1) by asserting that a
transactional relationship between the parties is unnecessary,
(2) by relying on conspiracy allegations, and (3) by conflating
class standing with Article III standing.
arguments are persuasive.
None of plaintiffs’
We will address them each in turn.
The fundamental infirmity with plaintiffs’ contract-based
and unjust enrichment claims against banks with which they did
not transact is that there is an inadequate nexus between named
plaintiffs
and
those
non-counterparty
banks.
We
cannot
be
certain if plaintiffs conceded this point with regard to their
58
contract claims,31 but in any event, it is clear that the law
requires an agreement between the parties for a defendant to be
liable for a breach of contract.
See MBIA Ins. Corp. v. Royal
Bank of Can., 706 F. Supp. 2d 380, 396 (S.D.N.Y. 2009) (“It is
well established that, generally, a party who is not a signatory
to
a
contract
cannot
be
held
liable
for
breaches
of
that
contract.”); see also Harsco Corp. v. Segui, 91 F.3d 337, 348
(2d Cir. 1996) (listing “the existence of an agreement” as the
first prong a plaintiff must satisfy in stating a breach of
contract
claim).
Here,
no
agreements
exist
between
named
plaintiffs and those banks with which they did not contract.
Therefore,
plaintiffs
cannot
state
a
claim
against
non-
counterparty banks on a breach of contract theory.
A
similar
analysis
enrichment claims.
applies
to
plaintiffs’
unjust
“The ‘essence’ of [an unjust enrichment]
claim ‘is that one party has received money or a benefit at the
expense of another.’”
Kaye v. Grossman, 202 F.3d 611, 616 (2d
Cir. 2000) (quoting City of Syracuse v. R.A.C. Holding, Inc.,
In their brief, plaintiffs state that while they “agree that under New York
law they may only state a claim for breach of contract against the defendants
with whom they contracted, they suffered a personal injury to their contracts
at the hands of each defendant.”
Pls.’ Brief in Opp’n to Defs.’ Mot. to
Dismiss Consolidated Second Am. Compl. (“OTC Pls.’ Opp’n”) at 6 (emphasis in
original).
Plaintiffs then maintain that this common injury provides named
plaintiffs with “class standing” to assert contract-based claims against all
defendants, not just those with which they transacted.
See id. at 7–11.
However, this theory relies on a misinterpretation of Second Circuit
precedent that is discussed in greater detail infra.
31
59
685 N.Y.S.2d 381, 381 (App. Div. 1999)).32
While parties need
not
sustain
be
in
privity
with
one
another
to
an
unjust
enrichment claim, a plaintiff must still plead that it had some
relationship with a defendant.
See In re Canon Cameras Litig.,
No. 05 Civ. 7233(JSR), 2006 WL 1751245, at *2 (S.D.N.Y. June 23,
2006) (noting that a direct relationship is not necessary, but
still requiring a “sufficient connection between the parties to
support a claim for unjust enrichment”); Jet Star Enters., Ltd.
v. Soros, No. 05 CIV. 6585(HB), 2006 WL 2270375, at *5 (S.D.N.Y.
Aug. 9, 2006) (finding that “plaintiff must have had direct
dealings
each
or
some
defendant”
sort
to
of
quasi-contractual
sustain
a
claim
for
relationship
unjust
with
enrichment);
Reading Int’l, Inc. v. Oaktree Capital Mgmt. LLC, 317 F. Supp.
2d 301, 334 (S.D.N.Y. 2003) (requiring plaintiffs to allege at
least a “prior course of business dealings” between the parties
to plead unjust enrichment claims adequately).
Here, it makes little sense to conclude that a particular
defendant bank somehow improperly obtained profits intended for
a certain plaintiff when those two parties never transacted or
otherwise maintained a business relationship at all.
“Where
“To establish a defendant's liability for unjust enrichment, the plaintiff
must [demonstrate] that ‘(1) defendant was enriched, (2) at plaintiff’s
expense, and (3) equity and good conscience militate against permitting
defendant to retain what plaintiff is seeking to recover.’”
Schatzki v.
Weiser Capital Mgmt., LLC, No. 10 Civ. 4685, 2014 WL 347396, at *1 (S.D.N.Y.
Jan. 29, 2014) (quoting Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373
F.3d 296, 306 (2d Cir. 2004)).
32
60
plaintiff
and
defendant
‘simply
had
no
dealings
with
each
other,’ their relationship is ‘too attenuated’” to support an
unjust
enrichment
claim.
LIBOR
I,
935
F.
Supp.
2d
at
737
(quoting Georgia Malone & Co., Inc. v. Rieder, 973 N.E.2d 743,
747 (N.Y. 2012)); see also Laydon v. Mizuho Bank, Ltd., No. 12–
cv–3419 (GBD), 2014 WL 1280464, at *13 (S.D.N.Y. Mar. 28, 2014)
(holding
that
“Plaintiff’s
conclusory
assertions
that
Bank
Defendants financially benefited from the unlawful manipulation
and that these unlawful acts caused Plaintiff to suffer injury .
. . fail to satisfy Plaintiff’s pleading burden”
enrichment
claims)
(alterations,
quotation marks omitted).
citations,
and
for unjust
internal
Thus, the lack of a sufficient nexus
between the named plaintiffs and non-counterparty banks is fatal
for
both
their
breach
of
contract
claims
and
their
unjust
enrichment claims against those defendants.
Plaintiffs’ attempt to plead that all defendant banks were
part
of
a
conspiracy
to
suppress
quasi-contract
LIBOR
claims
does
against
not
save
their
contract
and
non-counterparty
banks.33
Even if a conspiracy between the banks did exist, an
Both parties spend significant portions of their briefs debating whether
plaintiffs have adequately pled the existence of a conspiracy.
See Mem. of
Law in Supp. of Defs.’ Mot. to Dismiss OTC Pls.’ Second Consolidated Am.
Compl. (“Defs.’ OTC Mem.”) at 12–15; OTC Pls.’ Opp’n at 12–20.
However,
because the existence of a conspiracy does not cure the deficiencies in
plaintiffs’ claims against non-counterparty banks, and because plaintiffs’
claims against counterparty banks do not depend on a finding that there was,
in fact, a conspiracy, we do not decide here whether plaintiffs have
33
61
allegation
of
conspiracy
would
not
eliminate
plaintiffs’
requirement to plead the existence of some relationship between
the parties.
See Lehman v. Garfinkle, No. 08 Civ. 9385(SHS),
2009 WL 2973207, at *7 (S.D.N.Y. Sept. 16, 2009) (“To the extent
Plaintiff is attempting to argue that these defendants should be
liable
on
contracts
to
which
they
were
not
parties,
on
the
ground that all Defendants were co-conspirators, this argument
would fail, as New York law does not recognize such a theory of
liability.”); see also Spagnola v. Chubb Corp., 264 F.R.D. 76,
85
n.9
(S.D.N.Y.
2010)
(noting
that,
under
New
York
law,
“[t]here is no substantive tort of civil conspiracy; thus, there
cannot
be
any
cause
of
action
for
conspiracy
to
breach
[a]
contract” (quoting Smith v. Fitzsimmons, 584 N.Y.S.2d 692, 695
(App.
Div.
1992))
(internal
quotation
marks
omitted)).
As
discussed above, OTC plaintiffs have not pled the existence of a
relationship
banks.
between
named
plaintiffs
and
non-counterparty
Thus, irrespective of any conspiracy, the contract and
quasi-contract claims against those banks must fail.
Moreover,
would
appear
plaintiffs’
to
be
a
conspiracy
logical
theory
rests
inconsistency.
on
what
We
have
sufficiently pled a conspiracy in their complaint.
To the extent that a
finding of conspiracy might have evidentiary import, it is an issue to be
addressed only, if ever, at a later state of this litigation. See Farris v.
Cnty. of Camden, 61 F. Supp. 2d 307, 326 (D.N.J. 1999) (explaining that the
existence of a civil conspiracy, which is not an independent cause of action
under New Jersey law, may still be used as a mechanism to allow for the
admission into evidence of hearsay statements by coconspirators).
62
consistently maintained, and plaintiffs have not disputed, that
defendants competed with one another to secure the contracts
with
OTC
plaintiffs
that,
when
enriched the counterparty bank.
allegedly
breached,
unjustly
See LIBOR I, 935 F. Supp. 2d at
689 (“Plaintiff’s theory is that defendants competed normally in
the
interbank
loan
market
and
then
agreed
to
lie
about
the
interest rates they were paying in that market when they were
called upon to truthfully report their expected borrowing costs
to the BBA.”).
that
It would therefore be counterintuitive to assert
non-counterparty
banks
--
the
defendants
who
lost
business -- were somehow enriched at plaintiffs’ expense.
the
Thus,
not only are allegations of a conspiracy insufficient to salvage
plaintiffs’ claims against non-counterparty defendants, but the
actual conspiracy theory itself rests on faulty premises.
Having
failed
to
establish
that
no
transactional
relationship was necessary or that a conspiracy pleading was
sufficient
plaintiffs’
counterparty
to
overcome
final
banks
the
lack
of
attempt
to
state
hinges
on
their
such
a
a
claim
reading
relationship,
against
of
the
nonSecond
Circuit’s decision in NECA-IBEW Health & Welfare Fund v. Goldman
Sachs & Co., 693 F.3d 145 (2d Cir. 2012).
Because that reading
is a misinterpretation, this attempt, too, is unsuccessful.
63
In
NECA,
members
Goldman
Sachs
the
plaintiff
certificates
mortgage-backed
of
all
underwritten
&
Securities Corp.
Co.
and
issued
Id. at 149.
by
class
purchased
by
defendant
defendant
GS
Mortgage
The certificates were sold in
seventeen different offerings, but pursuant to the same shelf
registration
statement.
Id.
NECA,
the
named
plaintiff,
purchased certificates issued from only two of the offerings,
but
asserted
class
claims
on
behalf
of
defendants
who
had
purchased certificates from all seventeen offerings on the basis
that
the
offerings
were
registration
statement,
misleading.
Id.
all
made
which
pursuant
was
to
allegedly
the
common
false
and
The Circuit determined that NECA had “class
standing” to bring these claims on behalf of other purchasers
because
it
plausibly
alleged
“(1)
that
[it]
personally
has
suffered some actual . . . injury as a result of the putatively
illegal conduct of the defendant, and (2) that such conduct
implicates the same set of concerns as the conduct alleged to
have caused injury to other members of the putative class by the
same defendants.”
Id. at 162 (citations and internal quotation
marks omitted).
Before
however,
the
evaluating
NECA
Court
the
question
first
of
analyzed
“class
whether
standing,”
the
named
plaintiff had Article III standing and statutory standing to sue
64
defendants “in its own right.”
Id. at 158.
In applying NECA,
courts in this district have recognized that the Second Circuit
considers the questions of Article III, statutory, and class
standing as distinct.
See, e.g., Policemen’s Annuity & Benefit
Fund of Chi. v. Bank of Am., NA, No. 12 Civ. 2865(KBF), 2013 WL
5328181, at *4 (S.D.N.Y. Sept. 23, 2013) (“‘Class standing’ -the doctrine governing whether a named plaintiff may represent
the
interests
standing.
of
a
class
--
is
different
from
Article
III
In the class action context, the Second Circuit has
held that it is possible to have one and not the other.”); Okla.
Police Pension & Ret. Sys. v. U.S. Bank Nat’l Ass’n, 291 F.R.D.
47, 58 (S.D.N.Y. 2013) (“The Second Circuit Court of Appeals has
recently drawn a distinction between Article III standing of a
plaintiff
to
pursue
a
claim
against
a
defendant
and
class
standing.”); N.J. Carpenters Health Fund v. DLJ Mortg. Capital,
Inc., No. 08 Civ. 5653(PAC), 2013 WL 357615, at *2 (S.D.N.Y.
Jan.
23,
2013)
(“The
Second
Circuit
separated
its
standing
analysis into three parts -- Article III, statutory, and class
standing -- and addressed each in turn.”).
Thus, “before asking
whether a named plaintiff has standing to represent absent class
members”
based
on
the
two-prong
NECA
test,
we
“must
first
determine that the plaintiff satisfies traditional Article III
criteria ‘in its own right.’”
In re Harbinger Capital Partners
65
Funds Investor Litig., No. 12 Civ. 1244(AJN), 2013 WL 7121186,
at *3 n.2 (S.D.N.Y. Dec. 16, 2013) (quoting NECA, 693 F.3d at
158).
“[T]he
unchanging
core
part
Article III.”
(1992).
allege
component
of
the
of
standing
is
an
and
requirement
case-or-controversy
essential
of
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560
To demonstrate Article III standing, a plaintiff must
(1)
challenged
redressed
an
injury
actions
by
the
of
in
fact,
(2)
defendants,
requested
fairly
which
relief.
traceable
(3)
Id.
at
would
to
likely
560–61.
the
be
“[T]o
establish Article III standing in a class action . . . for every
named defendant there must be at least one named plaintiff who
can assert a claim directly against that defendant, and at that
point standing is satisfied and only then will the inquiry shift
to a class action analysis.”
NECA, 693 F.3d at 159 (quoting
Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck–
Medco Managed Care, L.L.C., 504 F.3d 229, 241 (2d Cir. 2007))
(emphasis added); see also Policemen’s Annuity & Benefit Fund,
2013 WL 5328181, at *4 (“[E]ven if a named plaintiff has a case
or controversy, that does not mean that he or she may represent
the interests of a class.”); Fort Worth Emps.’ Ret. Fund v. J.P.
Morgan Chase & Co., 862 F. Supp. 2d 322, 331 (S.D.N.Y. 2013)
(“For each claim asserted in a class action, there must be at
66
least one class representative (a named plaintiff or a lead
plaintiff) with standing to assert that claim.”).
As discussed above, named plaintiffs lack standing to sue
each of the named defendants “in their own right” under Article
III.
The only defendants against which named plaintiffs may
assert claims are those with which they contracted.
banks
with
which
named
plaintiffs
did
not
For the
contract,
the
relationship between the parties is too attenuated to support
claims for breach of contract or unjust enrichment.
To the
extent that any named plaintiff experienced an injury, it may be
fairly
traced
contract
and
counterparty
to
was
the
then
bank
relationship.
defendant
that
unjustly
with
Therefore,
enriched,
which
using
allegedly
not
plaintiff
the
breached
framework
to
the
the
non-
maintained
no
articulated
in
NECA, plaintiffs’ claims against non-counterparty banks do not
meet the threshold Article III standing requirements, and those
claims are hereby dismissed.
2.
Counterparty Banks
Although
we
non-counterparty
breach
of
have
banks
contract
found
must
and
that
be
plaintiffs’
dismissed,
unjust
claims
there
enrichment
still
claims
against
remain
against
counterparty banks UBS, Deutsche Bank, Barclays, Citibank, and
Credit Suisse.
For the reasons discussed below, we find that
67
plaintiffs have adequately stated these claims, and defendants’
motion to dismiss them is therefore denied.
Turning
complaint’s
first
to
allegations
the
against
contract-based
counterparty
claims,
banks
plausibility requirements of the Federal Rules.
the
meet
the
“Twombly does
not impose a probability requirement at the pleading stage.
simply
requires
reasonable
factual
expectation
allegations
that
evidence of liability.”
sufficient
discovery
is
likely
It
to
raise
a
to
generate
Keiler v. Harlequin Enters. Ltd., No.
13–1753–cv, 2014 WL 1704474, at *6 (2d Cir. May 1, 2014) (citing
Arista Records LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010)).
Plaintiffs’ factual allegations against the five counterparty
banks meet this burden.
See, e.g., OTC SAC ¶ 188 & figs. 6, 7,
13, 14, and 17 (demonstrating the negative spread between LIBOR
and the Federal Reserve’s Eurodollar Deposit Rate during the
Class Period for the five counterparty banks, which plaintiffs
allege
provides
(“[E]ach
evidence
Defendant
bank
of
LIBOR
suppression);
misreported
its
LIBOR
id.
¶
193
submissions
literally hundreds of times during the Class Period . . . .”).
Defendants
argue
that
plaintiffs’
allegations
are
too
general because they do not focus on the particular tenors of
LIBOR that applied to the parties’ contracts, and that “this
Court has previously noted [that] tenors of USD LIBOR are not
68
interchangeable:
Conduct
alleged
with
respect
cannot simply be imputed to the other.”
to
one
tenor
Defs.’ OTC Mem. at 19.
However, we drew that conclusion in the context of considering
exchange-based plaintiffs’ request to add trader-based claims to
their
complaint.
conduct
The
suggested
proposed
that
allegations
manipulation
was
concerning
episodic,
trader
varying
in
direction, and targeted to particular positions in the market.
These allegations therefore required specificity with regard to
tenor in order to demonstrate injury.
By contrast, the breach
of contract claims asserted by OTC plaintiffs claim that LIBOR
was systematically suppressed across all tenors, and that this
suppression led to plaintiffs receiving interest rate payments
that were too low.
more
generalized
This is a coherent theory, and plaintiffs’
allegations
of
persistent
LIBOR
suppression
across tenors is sufficient to meet its pleading
burden for
breach of contract claims against counterparty banks.
In terms of pleading intent for the contract-based claims,
plaintiffs’
muster.
allegations
against
counterparty
banks
also
pass
We have previously noted that stating a claim based on
a breach of the implied covenant of good faith requires “some
showing
of
intent
to
harm
reckless disregard of it.”
the
other
contracting
party
or
a
LIBOR II, 962 F. Supp. 2d at 634
(quoting Paul v. Bank of Am. Corp., No. 09–CV–1932 (ENV)(JMA),
69
2011 WL 684083, at *6 (E.D.N.Y. Feb. 16, 2011)).
LIBOR
II
that
defendants’
OTC
alleged
plaintiffs
had
manipulation
We found in
“plausibly
of
alleged
LIBOR
at
was
that
least
in
reckless disregard of the detriment to plaintiffs, with whom
[counterparty] defendants were in direct contractual privity.”
Id.
have
In the latest version of their complaint, OTC plaintiffs
again
adequately
alleged
that
defendants’
alleged
manipulation of LIBOR was at least in reckless disregard of the
potential harm to OTC plaintiffs, see OTC SAC ¶¶ 44, 78, 133,
and defendants have offered no new argument or authority that
undermines our earlier conclusion.
Thus, plaintiffs have pled
the requisite intent for their breach of implied covenant of
good faith claims.
Plaintiffs’
unjust
enrichment
against counterparty defendants.
claims
may
also
proceed
Under New York law, “where the
parties have entered into a contract that governs the subject
matter” of their dispute, a plaintiff is unable to proceed on an
unjust enrichment theory.
Pappas v. Tzolis, 982 N.E.2d 576, 580
(N.Y. 2012) (quoting Cox v. NAP Constr. Co., Inc., 891 N.E.2d
271, 278 (N.Y. 2008)) (internal quotation marks omitted).
In
terms of what constitutes the “subject matter” of this dispute,
defendants urge a broad interpretation, “focused on whether the
services provided by the defendant and remedy sought by the
70
plaintiff were traceable to a contract, not whether the contract
specifically
and
expressly
alleged to exist.”
contemplated
the
factual
scenario
Defs.’ OTC Mem. at 25.
However, the law counsels otherwise.
“[T]he predicate for
dismissing quasi-contract claims is that the contract at issue
‘clearly covers the dispute between the parties.’”
Union Bank,
N.A. v. CBS Corp., No. 08 Civ. 08362(PGG), 2009 WL 1675087, at
*7 (S.D.N.Y. June 10, 2009) (quoting Clark–Fitzpatrick, Inc. v.
Long Island R.R. Co., 516 N.E.2d 190, 193 (N.Y. 1987)); see also
IDT Corp. v. Morgan Stanley Dean Witter & Co., 907 N.E.2d 268,
274
(N.Y.
enforceable
2009)
(“Where
written
the
contract
parties
governing
executed
a
a
valid
particular
and
subject
matter, recovery on a theory of unjust enrichment for events
arising out of that subject matter is ordinarily precluded.”)
(emphasis added).
We reiterate our conclusion from LIBOR II:
“[A]lthough
the
swap
contracts
clearly
required
defendants to pay plaintiffs the prescribed floating
rate of return using the LIBOR reported by the BBA,
the contracts did not ‘clearly cover[ ]’ the subject
matter now at issue, namely whether defendants were
permitted to manipulate LIBOR itself and thereby
depress
the
amount
they
were
required
to
pay
plaintiffs.”
LIBOR II, 962 F. Supp. 2d at 630.
Moreover, we note that even
if the contract did govern the subject matter at issue, at this
stage of the litigation, plaintiffs may plead breach of contract
and
unjust
enrichment
in
the
71
alternative.
See,
e.g.,
Dragushansky v. Nasser, No. 12 CV 9240(TPG), 2013 WL 4647188, at
*8
(S.D.N.Y.
818(RWS),
Aug.
2013
WL
29,
2013);
3199652,
Usov
at
*5
v.
Lazar,
(S.D.N.Y.
No.
June
13
25,
Civ.
2013).
Thus, plaintiffs’ unjust enrichment claims against counterparty
banks are not barred by the existence of the contracts.34
VI.
Defendant Société Générale (“SG”)
Beginning in mid-2011, private lawsuits began to be filed
in this District and in others across the country relating to
the alleged manipulation of LIBOR.
One such action was Jeffrey
Laydon v. Credit Suisse Group AG, et al., No. 11 Civ. 02824
(N.D. Ill. Apr. 27, 2011).
of
persons
and
entities
Laydon sought to represent a class
who
transacted
in
exchange-traded,
LIBOR-based derivatives (such as Eurodollar futures contracts)
between January 1, 2006 and December 31, 2009.
Laydon Compl. ¶
66.
Id. ¶ 25.
SG was named as a defendant in that action.
In a letter to the Court dated April 17, 2014, OTC plaintiffs requested
permission to add Yale University as a class representative. Defendants have
not identified any prejudice that they would experience based on the addition
of Yale to the complaint, and as we established above, the addition of Yale
would not be futile, because the university may assert claims against those
banks with which it transacted directly.
The Court also has no reason to
believe that OTC plaintiffs’ request “has been delayed unduly” or “is sought
for dilatory purposes or . . . in bad faith.”
Lee v. Regal Cruises, Ltd.,
916 F. Supp. 300, 303 (S.D.N.Y. 1996).
In any event, given the six-year
statute of limitations for asserting a breach of contract claim in New York,
if we were to deny plaintiffs’ request, Yale would have ample time to
commence its own individual action against those banks with which it
transacted. See N.Y. C.P.L.R. § 213(2). Given that this Court will continue
to manage this entire multidistrict litigation moving forward, Yale’s
individual action would be assigned to this Court and proceed in parallel
with that of the OTC plaintiffs. Thus, adding Yale as a class representative
for is minimally different from allowing it to file a separate action.
Therefore, we grant plaintiffs’ request to add Yale as a named plaintiff.
34
72
On August 12, 2011, the Judicial Panel on Multidistrict
Litigation transferred Laydon to this Court for “coordinated or
consolidated
actions.
pretrial
proceedings”
with
other
LIBOR-related
Transfer Order, In re LIBOR-Based Fin. Instruments
Antitrust Litig., 802 F. Supp. 2d 1380, 1381 (Mem.) (J.P.M.L.
2011).
In late-2011, Laydon’s claims were consolidated with
those of the other exchange-based plaintiffs in this MDL.
On April 30, 2012, exchange-based plaintiffs filed their
First Consolidated Amended Complaint (“FAC”), which superseded
the previous complaints of the class members -- including the
Laydon
complaint
--
and
was
legally
operative.
See
In
re
Refrigerant Compressors Antitrust Litig., 731 F.3d 586, 591 (6th
Cir. 2013) (finding that a consolidated class complaint filed in
an MDL “superseded any prior individual complaints”).
The FAC
did not name SG as a defendant, and the Class Period asserted
was August 2007 to May 2010.
FAC ¶¶ 1, 27–42.
It was not until
May 2013 that exchange-based plaintiffs sought leave to amend
their
complaint
to
include
SG.35
In
LIBOR
II,
we
granted
exchange-based plaintiffs leave to amend their complaint to name
SG as a defendant, which they did by September 10, 2013.
LIBOR
There is some debate as to whether the relevant date here is May 17, 2013
or May 23, 2013.
See Reply Mem. of Law in Further Supp. of Def. Société
Générale’s Mot. to Dismiss at 3 & n.3 (discussing the disagreement between
the parties).
Because our analysis does not depend on this six-day
difference, we decline to resolve this question of fact.
35
73
II, 962 F. Supp. 2d at 624.
Defendant SG then filed a motion to
dismiss, which was fully briefed by January 28, 2014.
In considering SG’s motion to dismiss, we begin with two
key propositions.
First, inquiry notice is not a defendant-
specific determination.
required
to
specificity
trigger
with
In LIBOR I, we wrote: “The specificity
inquiry
regard
to
notice
[each]
is
not
defendant,
necessarily
but
rather
specificity that notifies a plaintiff that he has been injured.”
LIBOR I, 935 F. Supp. 2d at 706.
The fact that SG did not join
the LIBOR panel until February 2009 and that SG’s role on the
panel was not discussed especially in the press is of no import.
Therefore,
we
reject
plaintiffs’
suggestion
that
we
should
evaluate inquiry notice on a defendant-by-defendant basis.
Second, there is nothing to suggest that inquiry notice had
dissipated for plaintiffs during Period 3.
It was not necessary
for us to address this issue in either LIBOR I or LIBOR II, as
the operative complaint was filed on April 15, 2011, and claims
based on transactions during Period 3 -- between April 15, 2009
and May 2010 -- clearly fell within the CEA’s two-year statute
of limitations.
But here, plaintiffs did not move to add SG
until May 2013, so the question of when Period 3 plaintiffs were
on inquiry notice is relevant.
74
Given our decision that Period 1 and Period 2 purchasers
were on inquiry notice, as well as the fact that plaintiffs have
not identified any purchasers who transacted during only Period
3, plaintiffs have the “burden of demonstrating that their duty
to inquire dissipated in order for their claims not to be time
barred.”
Part IV supra.
burden.
They have plainly failed to meet this
In fact, plaintiffs have not cited a single article or
event during Period 3 that would have dissipated their duty to
inquire.36
believe
Period
As we have previously stated, it is nonsensical to
that
could
plaintiffs
have
who
simply
purchased
wiped
throughout
their
conducting their later transactions.
minds
the
clean
Class
before
This is especially true
considering the lack of any credible information suggesting that
the
BBA
or
other
regulators
had
enacted
meaningful
designed to ensure the accurate calculation of LIBOR.
reforms
Thus,
plaintiffs were on inquiry notice of their claims against SG not
only during Period 1 and Period 2, but also during Period 3.
In their brief, plaintiffs assert that they actually did inquire before
filing their complaint, claiming to have been “diligen[t] in investigating
claims against [SG].”
Mem. of Law in Opp’n to Def. Société Générale’s Mot.
to Dismiss at 15.
However, these assertions have not been substantiated in
any way or even referenced before this brief; as a result, the Court will not
give these statements any analytic weight. See Simpson v. Putnam Cnty. Nat’l
Bank of Carmel, 20 F. Supp. 2d 630, 635 (S.D.N.Y. 1998) (declining to “read
assertions of diligence into plaintiff’s complaint” when plaintiff’s
opposition papers contained claims of diligent investigation that were absent
from the complaint itself).
36
75
Considering
that
the
Class
Period
ended
in
May
2010,
exchange-based plaintiffs needed to assert CEA claims against SG
by May 2012 -- within the two-year statute of limitations -- to
be timely.
2013.
It is undisputed that they did not do so until May
Consequently,
absent
some
against SG would be time barred.
these
claims
by
maintaining
tolling,
plaintiffs’
claims
Plaintiffs attempt to salvage
that
the
statute
of
limitations
should have been tolled pursuant to American Pipe & Construction
Co. v. Utah, 414 U.S. 538 (1974).
Under American Pipe, “the
commencement of a class action suspends the applicable statute
of limitations as to all asserted members of the class who would
have been parties had the suit been permitted to continue as a
class action.”
We
agree
Id. at 554.
with
plaintiffs
applicable to this case.
that
American
Pipe
tolling
is
However, only “asserted members of the
class who would have been parties had the suit been permitted to
continue as a class action” may have their claims tolled.
Id.;
see also Matana v. Merkin, 957 F. Supp. 2d 473, 488 (S.D.N.Y.
2013) (finding that “to take advantage of the toll, a plaintiff
must have been a member of the purported class”); In re Direxion
Shares ETF Trust, 279 F.R.D. 221, 237 (S.D.N.Y. 2012) (noting
that American Pipe “only tolls the limitations period for claims
of ‘asserted’ class members”).
Therefore, only those exchange76
based plaintiffs who were also members of the Laydon class may
have their claims tolled.
As discussed above, the Laydon class
period
31,
ended
asserted
on
December
against
SG
until
2009,
and
the
approximately
claims
three
were
years,
not
four
months, and three weeks after that date (mid- to late-May 2013).
Thus,
for
American
Pipe
tolling
to
save
these
plaintiffs’
claims, it must have tolled them for all but two years of that
time gap: approximately one year, four months, and three weeks.
American Pipe does not toll plaintiffs’ claims sufficiently
to keep them from being time barred.
If the toll were to begin
on April 27, 2011 -- the date when Laydon was filed -- it would
end on April 30, 2012, the date when exchange-based plaintiffs
filed the FAC that did not name SG as a defendant.
WorldCom,
Inc.
Sec.
Litig.,
No.
02
Civ.
3288(DLC),
See In re
2004
WL
555697, at *6 (S.D.N.Y. Mar. 19, 2004) (finding that American
Pipe tolling applied in the context of claims against particular
defendants in a consolidated class action only for the time
between
when
those
defendants
were
named
in
an
original,
individual class action complaint and when those defendants were
not named in a consolidated class action complaint).
This is a
one-year-and-three-day toll, which is well short of the tolling
required
to
save
plaintiffs’
claims.
77
Thus,
American
Pipe
tolling does not render claims against SG timely, and claims
against that defendant under the CEA must be dismissed.
There
are
also
some
exchange-based
transacted after December 31, 2009
until May 2010.
plaintiffs
who
-- the Class Period runs
However, these late purchasers were not part of
the Laydon class, and as a result, they are not eligible to
receive the benefit of American Pipe tolling.
last
date
for
any
of
these
plaintiffs
to
Therefore, the
have
asserted
CEA
claims against any defendant bank, including SG, would have been
in May 2012, two years after the end of the Class Period.
Since
exchange-based plaintiffs did not move for leave to amend their
complaint
to
add
SG
until
May
2013,
one
year
late,
claims
against SG based on contracts purchased between January 1, 2010
and May 2010 are also time barred.
In
Laydon
barred.
sum,
whether
action,
all
or
CEA
not
plaintiffs
claims
were
asserted
a
against
party
SG
to
are
the
time
We therefore grant SG’s motion to dismiss.
CONCLUSION
For the reasons stated above, exchange-based plaintiffs’
motion for reconsideration of our ruling on trader-based claims
is denied, but their motion for leave to amend their complaint
is granted; defendants’ motion to dismiss CEA claims on scienter
grounds
is
denied;
defendants’
78
motion
to
dismiss
CEA
claims
arising out of contracts purchased between
May 30, 2008
and
April 14, 2009 is granted; defendants’ motion to dismiss OTC
plaintiffs’ contract and unjust enrichment claims is granted in
part and denied in part; and defendant Société Générale’s motion
to dismiss the exchange-based plaintiffs’ complaint is granted.
It has been nearly two years since defendants first moved
to dismiss plaintiffs’ consolidated amended complaints.
Since
then, this Court has issued three major opinions and the parties
have submitted hundreds, if not thousands, of pages of briefing
materials, all in an attempt to resolve the threshold question
of
any
litigation:
what
claims,
if
any,
have
plaintiffs
adequately pled?
Now, at long last, there is clarity.
OTC plaintiffs may
state claims for breach of the implied covenant of good faith
and fair dealing, and claims for unjust enrichment, but only
against
those
defendant
transacted directly.
banks
with
which
OTC
plaintiffs
Exchange-based plaintiffs may state claims
under the CEA based on contracts purchased between April 15,
2009 and the end of the Class Period, based on a theory that
defendants’ alleged persistent suppression of LIBOR caused them
damages;
Générale,
however,
as
those
no
such
claims
claim
are
may
time
lie
barred.
against
Société
Exchange-based
plaintiffs may also state claims against Barclays and Rabobank
79
based on the alleged day-to-day,
trader-based manipulation that
occurred between January 1, 2005 and August 2007.
This Memorandum and Order resolves docket entry nos.
396,
418, 428, 453, 507, and 516.
SO ORDERED.
Dated:
New York, New York
June .2._!j_, 2014
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
80
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