7 West 57th Street Realty Company, LLC v. CitiGroup, Inc. et al
Filing
172
MEMORANDUM OPINION & ORDER re: 114 MOTION to Dismiss Notice of Defendants' Motion to Dismiss the Amended Complaint filed by The Norinchukin Bank, WestDeutsche Immobilienbank AG, WestLB AG, Citibank, N.A,, Royal Bank of Ca nada, UBS AG, HSBC Bank PLC, Bank of America N.A., CitiGroup, Inc., HBOS PLC, Barclays Bank PLC, Deutsche Bank AG, Bank of Tokyo-Mitsubishi UFJ Ltd., JPMorgan Chase Bank NA, Bank of America Corp., Cooperatieve Centrale Raiffeise n-Boerenleenbank B.A., Lloyds Banking Group plc, HSBC Holdings plc, JPMorgan Chase & Co., Credit Suisse Group AG, Royal Bank of Scotland Group, plc, 139 MOTION to Dismiss for Lack of Personal Jurisdiction by Foreign Banks filed by The Norinchukin Bank, WestDeutsche Immobilienbank AG, Royal Bank of Canada, HSBC Bank PLC, HBOS PLC, Barclays Bank PLC, Deutsche Bank AG, Bank of Tokyo-Mitsubishi UFJ Ltd., Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., Lloyds Banking Group plc, HSBC Holdings plc, Portigon AG(f/k/a WestLB AG), Royal Bank of Scotland Group, plc, Credit Suisse Group AG., For the reasons stated above, Defendants' motions to dismiss the Amended Complaint are granted. Any m otion for leave to file a second amended complaint is to be filed by April 30, 2015. The Clerk of the Court is directed to terminate the motions (Dkt. Nos. 114, 139). SO ORDERED. ( Amended Pleadings due by 4/30/2015.) (Signed by Judge Paul G. Gardephe on 3/31/2015) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
:
I
DATE FILED: ~Ji/201!)
7 WEST 57TH STREET REALTY COMPANY,
LLC,
Plaintiff,
MEMORANDUM
OPINION & ORDER
-against13 Civ. 981 (PGG)
CITIGROUP, INC.; CITIBANK, N.A.; BANK OF
AMERICA CORP.; BANK OF AMERICA N.A.;
BARCLAYS BANK PLC; UBS AG; JPMORGAN
CHASE & CO.; JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION; CREDIT SUISSE
GROUP AG; BANK OF TOKYO-MITSUBISHI
UFJ LTD.; COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.; HSBC
HOLDINGS PLC; HSBC BANK PLC; HBOS
PLC; LLOYDS BANKING GROUP PLC; ROYAL
BANK OF CANADA; THE NORINCHUKIN
BANK; ROYAL BANK OF SCOTLAND GROUP,
PLC; WESTLB AG; WESTDEUTSCHE
IMMOBILIENBANK AG; DEUTSCHE BANK
AG,
Defendants.
PAUL G. GARDEPHE, U.S.D.J.:
On February 13, 2013, Plaintiff? West 57th Street Realty Company, LLC- the
assignee of Sheldon H. Solow- filed this action against Defendants Citigroup, Inc.; Citibank,
N.A.; Bank of America Corp.; Bank of America N.A.; Barclays Bank Plc; UBS AG; JPMorgan
Chase & Co.; JPMorgan Chase Bank, National Association; Credit Suisse Group AG; Bank of
Tokyo-Mitsubishi UFJ Ltd.; Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.; HSBC
Holdings Plc; HSBC Bank Plc; HBOS Plc; Lloyds Banking Group Plc; Royal Bank of Canada;
The Norinchukin Bank; Royal Bank of Scotland Group, Plc; WestLB AG; Westdeutsche
Immobilienbank AG; and Deutsche Bank AG, alleging that Defendants colluded to manipulate
the London InterBank Offered Rate for the U.S. dollar ("USD-LIBOR") in 2008. (Am. Cmplt.
(Dkt. No. 95)) Plaintiff claims that Defendants- who are members of the British Bankers
Association (the "BBA"), and who were responsible for submitting interest rates that the BBA
used to calculate USD-LIBOR in 2008- violated Section 1 of the Sherman Act, 15 U.S.C. § 1;
the Clayton Act, 15 U.S. C.§ 12 et seq.; the Racketeer Influenced and Corrupt Organizations Act
("RICO"), 18 U.S.C. § 1961 et seq.; and New York's Donnelly Act, N.Y. Gen. Bus. Law§ 340.
(Am. Cmplt. (Dkt. No. 95) ~ 1)
Defendants have moved to dismiss the Amended Complaint. (Dkt. Nos. 114,
139) For the reasons stated below, Defendants' motions to dismiss will be granted.
2
BACKGROUND 1
I.
FACTUAL BACKGROUND
A.
THE LIBOR-FIXING SCHEME
The London InterBank Offered Rate ("LIBOR") is set daily by the BBA, a non-
regulatory body governed by a board composed ofmembers ofvarious banks. (Am. Cmplt.
(Dkt. No. 95) ~~ 39, 40) LIBOR functions as a pricing mechanism and benchmark for
determining, inter alia, interest rates for trillions of dollars in financial instruments worldwide.
(Id.
~~
5, 50-55)
Each day, the BBA calculates and publishes LIBOR for ten currencies, including
the U.S. dollar. (Id.
~
41) Each of these currencies is overseen by a separate BBA "Contributor
Panel." (Id.) A Contributor Panel consists of various banks that- as described below- provide
submissions to the BBA that are used to calculate the daily LIBOR for that panel's particular
currency. See id.
1
The following facts are drawn from the Amended Complaint and are presumed true for
purposes of resolving Defendants' motions to dismiss. See Kassner v. 2nd Ave. Delicatessen,
Inc., 496 F.3d 229, 237 (2d Cir. 2007). In resolving Defendants' motions, the Court has also
considered documents that are incorporated into the Amended Complaint by reference, including
non-prosecution and deferred prosecution agreements that certain Defendants entered into with
the United States Department of Justice, as well as certain press releases and news articles
concerning the manipulation ofLIBOR. See Am. Cmplt. (Dkt. No. 95) ~~ 59-126. "In assessing
the legal sufficiency of [a plaintiffs] claim[ s] [on a motion to dismiss,]" the court may
"consider ... the complaint and any documents attached thereto or incorporated by reference and
'documents upon which the complaint "relies heavily.""' Bldg. Indus. Elec. Contractors Ass'n
v. City ofN.Y., 678 F.3d 184, 187 (2d Cir. 2012) (quoting In re Citigroup ERISA Litig., 662
F.3d 128, 135 (2d Cir. 2011) (quoting DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d
Cir. 2010))). The Court has also taken judicial notice of public filings in New York state court
proceedings brought by Defendant Citibank, N.A. against Solow. See Global Network
Commc'ns, Inc. v. City ofN.Y., 458 F.3d 150, 157 (2d Cir. 2006) ("'[In deciding a motion to
dismiss,] [a] court may take judicial notice of a document filed in another court not for the truth
of the matters asserted in the other litigation, but rather to establish the fact of such litigation and
related filings."' (quoting Int'l Star Class Yacht Racing Ass'n v. Tommy Hilfiger U.S.A., Inc.,
146 F.3d 66, 70 (2d Cir. 1998)).
3
Defendants are or were members of the Contributor Panel for the U.S. dollar. (Id.
~
39) Defendants are also horizontal competitors across a range of financing activities, including
transactions that expressly incorporate LIBOR as a benchmark. (Id.
~
36)
USD-LIBOR is set daily through a process orchestrated by the BBA. (Id.
~
43)
Each day, the BBA asks the sixteen banks on the Contributor Panel for USD-LIBOR (the
"contributing banks") "[a]t what rate [of interest] [they] could ... borrow funds, were [they] to
do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to
11 am[.]" (Id.) Under BBA rules, each bank's answer- referred to as its "contribution" or
"submission" - is meant to reflect the interest rate at which members of the bank's staff who are
primarily responsible for management of the bank's cash believe that the bank could borrow
unsecured interbank funds in the London money market. (Id.
~
44) Under BBA rules, each
contributing bank's submission must be based on its own independent good faith judgment,
taking into account market conditions and the bank's posture as a borrower in the market for
interbank loan funds. (Id.
~
45) The contributing banks' daily submissions to the BBA reflect
their costs of borrowing funds at three maturity dates- one-month, three-months, and sixmonths. (Id.
~
43)
Thomson Reuters- an independent entity- collects the contributing banks'
submissions on the BBA's behalf. (Id.
~~
47, 49) Using the contributing banks' submissions,
Thomson Reuters calculates USD-LIBOR through an "inter-quartile" methodology, in which it
discards the four highest and the four lowest submissions, and then averages the remaining eight
submissions to arrive at the USD-LIBOR for a given day. (Id.
~
43)
The BBA requires each contributing bank to arrive at its own daily submission
without referring to the submissions of other banks on the Contributor Panel. (Id.
4
~~
44, 46)
Each bank is further required to keep its submission confidential until after Thomson Reuters
~~
publishes the daily USD-LIBOR. (Id.
46, 49) When USD-LIBOR is published, the rates
submitted by each individual contributor bank are published as well, so that it is clear how USDLIBOR was calculated. (Id.
~~
46, 47)
The BBA also prohibits banks from submitting contributions based on the pricing
of any derivative financial instruments tied to LIBOR. (Id.
~
44) This prohibition is intended to
prevent contributing banks from making submissions based on a motive to maximize profits or
minimize losses in connection with such derivative transactions. (Id.)
By 2008, however, Defendants were not complying with the BBA's rules
governing their submissions. See id.
~
5. Instead, "Defendants ... manipulate[d) USD-LIBOR
by falsely reporting to the BBA the ... interest rates at which the Defendant banks expected they
could borrow funds ... on a daily basis." (Id.
~~
6, 68, 73) Traders at the contributing banks
asked their colleagues who were responsible for submitting rates to the BBA (the "LIBOR
submitters") to submit rates that would benefit the bank's own trading positions, as opposed to
rates that reflected the bank's good faith judgment of its true cost ofborrowing that day. See,
~'
id. Traders also requested that their counterparts at other contributing banks do the same.
See, ~' id. The traders made these requests through electronic messages, telephone calls, and
in-person conversations.
See,~'
id.
~
61. The LIBOR submitters frequently agreed to
accommodate these requests. See id. Through their traders' requests- and the LIBOR
submitters' acquiescence - Defendants caused rates to be submitted to the BBA that served
Defendants' own financial interests, rather than complying with BBA standards. (Id.
~~
5, 6) As
a result, USD-LIBOR calculated on the basis of these rates was "artificial" and did not reflect the
contributing banks' true costs of borrowing under actual market conditions. (Id.)
5
B.
SOLOW'S LOANS AND 2008 DEFAULT
Solow- who assigned his claims related to this action to Plaintiff- pledged a
portfolio of more than $450 million in high-grade municipal bonds as collateral for LIBORdenominated loans in or about 2003. See id.
Defendant Citibank, N.A. (Id.
~~
~~
9, 148. Several of these loans were issued by
9, 15) The interest rate for these loans was determined by
reference to USD-LIBOR. See id.
~
9. For approximately five years, the interest rate on
Solow's loans was LIBOR + 0.75%. (Id.
~
148) In March 2008, however, Citibank: increased
the interest rate on the loans to LIBOR + 1.25%. (Id.
~
148)
Statistical analysis indicates that- at certain times between August 31, 2007 and
October 22, 2008 -there was a negative correlation coefficient relationship between one-month
USD-LIBORrates and Standard & Poor's ("S&P") New York AMT-Free Municipal Bond Index
(the "S&P bond index"), which is an index that measures the performance of bonds similar to
those in Solow's portfolio. (Id.
~
156) This analysis suggests that an increase in one-month
USD-LIBOR during those periods was, on average, associated with a decline in the value of the
bonds listed in the S&P bond index. (Id.)
Between September 12, 2008 and October 10, 2008, Defendants' submissions to
the BBA for the calculation ofUSD-LIBOR were higher than their true costs of borrowing,
which resulted in the artificial inflation ofUSD-LIBOR throughout that period. (Id.
~~
151, 153-
54, 157)
On September 24, 2008, Citibank: notified Solow that on five consecutive days
between September 17 and September 23, 2008, the value of his bond portfolio had dropped
below the value required as collateral for his loans. (Id.
6
~
152) Solow was then current on his
loans, but Citibank nonetheless declared a technical default and seized Solow's bond portfolio.
(Id.
~~
9, 149, 152, 158)
On November 3, 2008, Solow's portfolio- which had been worth $450 million
when pledged as collateral- sold for approximately $415 million, net of commissions. (Id.
~
159) Defendants Citibank, JPMorgan, Banlc of America, Barclays, and Deutsche Bank were
"direct and indirect" participants in the liquidation of the portfolio, with Citibank purchasing a
substantial portion of the portfolio in the first instance. (Id.
~
158) Because there was still a
deficiency in the amount Solow owed following this sale, Citibank seized the portfolio's earned
interest of more than $15,000 as well. (Id.
~
159)
Between October 6 and November 13, 2008, Citibank seized more than $4.2
million in cash from accounts held by Solow. (Id.) Citibank claimed that at least $2.1 million of
the cash seized was for interest that Solow owed on the loans after default. (Id.) In calculating
interest, Citibank applied a "default" interest rate, which was LIBOR-denominated and higher
than the interest rate that had applied prior to Citibank's declaration of default. (Id.)
After these transactions, Citibank still claimed a $67 million deficiency, and
demanded immediate payment of the deficiency and an additional $18.5 million in cash
collateral. (Id.
~~
159, 160) On December 16, 2008, Citibank filed suit against Solow in New
York Supreme Court seeking the $67 million deficiency, interest at the default interest rate,
$18.5 million in cash collateral and fees, unspecified management fees, expenses, costs, and
attorneys' fees. (Id.
~
161)
On March 24, 2011, Citibank obtained a judgment against Solow in New York
Supreme Court for more than $100 million. (Id.
~
162; Ruffino Decl. (Dkt. No. 118) Ex. D) On
February 23, 2012, the lower court's judgment was affirmed by the First Department. See
7
Citibank, N.A. v. Solow, 92 A.D.3d 569, 570 (1st Dep't), leave to appeal denied, 19 N.Y.3d 807
(N.Y. 2012). Solow paid the judgment in full on May 23, 2012. (Am. Cmplt. (Dkt. No. 95)
~
162)
II.
PROCEDURAL HISTORY
After satisfying the state court judgment, Solow assigned claims arising out of the
events described above to Plaintiff? West 57th Street Realty Company. See id.
~
1. Plaintiff
commenced this action on February 13, 2013. (Cmplt. (Dkt. No. 1)) The Amended Complaint
was filed on June 11, 2013. (Am. Cmplt. (Dkt. No. 95)) Plaintiff claims that- but for
Defendants' conduct- USD-LIBOR would not have been artificially inflated in September 2008,
the value of Solow's bond portfolio would not have dropped beneath the value necessary to
collateralize Solow's loans with Citibank, and no default on the loans would have been declared.
See id. Plaintiff further claims that the seizure of Solow's portfolio and cash, the low prices
realized from the sale of the portfolio, the high default interest rates Solow was forced to pay,
and the judgment in the state court action all resulted from Defendants' manipulation ofUSDLIBOR. See id.
~
163.
On December 13,2013, all Defendants moved to dismiss the Amended
Complaint. (Dkt. No. 114) Defendants argue that (1) Plaintiffs claims are barred by the
applicable statutes oflimitations; (2) Plaintiff has failed to state an antitrust claim; (3) Plaintiff
has failed to state a RICO claim; (4) Plaintiffs claims are barred by res judicata in light of the
state court proceedings; and (5) Plaintifflacks standing to assert Solow's claims. See Dkt. Nos.
115, 117.
On October 23, 2014, the foreign bank Defendants requested leave to file a
second motion to dismiss - for lack of personal jurisdiction- based on developments in the law
8
of personal jurisdiction since the original motion to dismiss was filed. (Dkt. No. 133) This
Court granted Defendants' application, and on December 10, 2014, the foreign bank Defendants
filed a motion to dismiss for lack of personal jurisdiction. (Dkt. No. 139)
DISCUSSION
I.
LEGAL STANDARD FOR MOTION TO DISMISS
"To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to 'state a claim to relief that is plausible on its face."' Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
"In considering a motion to dismiss . . . the court is to accept as true all facts alleged in the
complaint," Kassner, 496 F.3d at 237 (citing Dougherty v. Town ofN. Hempstead Bd. of Zoning
Appeals, 282 F.3d 83, 87 (2d Cir. 2002)), and must "draw all reasonable inferences in favor of
the plaintiff." Id. (citing Fernandez v. Chertoff, 471 F.3d 45, 51 (2d Cir. 2006)).
A complaint is inadequately pled "if it tenders 'naked assertion[s]' devoid of
'further factual enhancement,"' Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557), and
does not provide factual allegations sufficient "to give the defendant fair notice of what the claim
is and the grounds upon which it rests." Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507
F.3d 117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. at 555). "In considering a motion to
dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the
facts alleged in the complaint, documents attached to the complaint as exhibits, and documents
incorporated by reference in the complaint." DiFalco, 622 F.3d at Ill (citing Chambers v. Time
Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); Hayden v. Cnty. ofNassau, 180 F.3d 42, 54 (2d
Cir. 1999)).
9
II.
PERSONAL JURISDICTION
The Bank ofTokyo-Mitsubishi UFJ, Ltd., Barclays Pank PLC, Credit Suisse
Group AG, Deutsche Bank AG, HSBC Holdings plc, HSBC Bank plc, Lloyds Banking Group
plc, Cooperatieve Centrale Raifieisen-Boerenleenbank B.A., HBOS plc, the Norinchukin Bank,
the Royal Bank of Canada, the Royal Bank of Scotland plc, Portigon AG (f/k/a WestLB AG),
and Westdeutsche ImmobilienBank AG (together, the "Foreign Banks") claim that this Court
lacks personal jurisdiction over them. (Def. Br. on Motion to Dismiss for Lack of Personal
Jurisdiction (Dkt. No. 140) at 1) "Jurisdiction to resolve cases on the merits requires ...
authority ... over the parties (personal jurisdiction), so that the court's decision will bind them."
Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 577 (1999). Accordingly, this Court will
address the Foreign Banks' objection to this Court's exercise of personal jurisdiction over them
before addressing the arguments brought by all Defendants that Plaintiff has failed to state a
claim.
A.
The Foreign Banks Have Not Waived Their Personal Jurisdiction Objection
Plaintiff argues that the Foreign Banks have waived their objections as to personal
jurisdiction by not raising them in their original motion to dismiss under Rule 12(b). (Pltf. Opp.
to Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. No. 157) at 17) Generally, a party
waives any objection to personal jurisdiction by not raising it on a motion to dismiss under Rule
12(b). See Fed. R. Civ. P. 12(h)(1)(A) ("A party waives any defense listed in Rule 12(b)(2)-(5)
by ... omitting it from a motion described in Rule 12(g)(2) [providing that a party who makes a
motion under Rule 12(b) must not make another motion under Rule 12(b) raising a new defense
or objection that was available but omitted from its earlier motion]"). However, Rule 12(g)(2)
provides that only where "a defense or objection ... was available to the party" does its omission
10
from an earlier Rule 12(b) motion constitute waiver. Fed. R. Civ. P. 12(g)(2); see Hawknet, Ltd.
v. Overseas Shipping Agencies, 590 F.3d 87, 92 (2d Cir. 2009) ('"[A] party cannot be deemed to
have waived objections or defenses which were not known to be available at the time they could
first have been made."' (quoting Holzsager v. Valley Hosp., 646 F.2d 792, 796 (2d Cir. 1981))).
Plaintiff argues that an objection as to personal jurisdiction was available to the
Foreign Banks when they filed their original motion to dismiss in December 2013. (Pltf. Opp. to
Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. No. 157) at 18-19) In Gucci America,
Inc. v. Weixling Li, 768 F.3d 122 (2d Cir. 2014), however, the Second Circuit ruled that a
foreign bank similarly situated to the Foreign Banks in this case had not waived its objection to
personal jurisdiction, even though the bank had not raised a personal jurisdicti.on objection in the
district court:
In Daimler[AG v. Bauman, 134 S.Ct. 746 (2014)], the Supreme Court for the first
time addressed the question whether, consistent with due process, "a foreign
corporation may be subjected to a court's general jurisdiction based on the
contacts of its in-state subsidiary." 134 S.Ct. at 759. Assuming without deciding
that such contacts may in some circumstances be imputed to the foreign parent,
the Court held that a corporation may nonetheless be subject to general
jurisdiction in a state only where its contacts are so "continuous and systematic,"
judged against the corporation's national and global activities, that it is
"essentially at home" in that state. Id. at 761-62. Aside from "an exceptional
case," the Court explained, a corporation is at home (and thus subject to general
jurisdiction, consistent with due process) only in a state that is the company's
formal place of incorporation or its principal place ofbusiness. Id. at 761 & n.19.
In so holding, the Court expressly cast doubt on previous Supreme Court and New
York Court of Appeals cases that permitted general jurisdiction on the basis that a
foreign corporation was doing business through a local branch office in the forum.
See id. at 735 n.18 (citing Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898)[;] Tauza
v. Susquehanna Coal Co., 220 N.Y. 259 (1917)) ....
We conclude that applying the Court's recent decision in Daimler, the district
court may not properly exercise general personal jurisdiction over the Bank. Just
like the defendant in Daimler, the nonparty Bank here has branch offices in the
forum, but is incorporated and headquartered elsewhere. Further, this is clearly
not "an exceptional case" where the Bank's contacts are "so continuous and
systematic as to render [it] essentially at home in the forum." Daimler, 134 S.Ct.
11
at 761 & n.l9 (alteration in original) (quoting Goodyear [Dunlop Tires
Operations, S.A. v. Brown], 131 S.Ct. [2846,] 2851 [(2011)]) ....
Although the Bank appeared in the district court and did not argue there that the
court lacked personal jurisdiction, we also conclude that its objection to the
exercise of general jurisdiction has not been waived. While arguments not made
in the district court are generally waived, see Datskow v. Teledyne, Inc., Cont'l
Prods. Div., 899 F.2d 1298, 1303 (2d Cir. 1990), "a party cannot be deemed to
have waived objections or defenses which were not known to be available at the
time they could first have been made," Hawknet, 590 F.3d [at] 92 (citation
omitted). Accordingly, we have held that a defendant does not waive a personal
jurisdiction argument - even if he does not make it in the district court - if the
"argument that the court lacked jurisdiction over [the] defendant would have been
directly contrary to controlling precedent in this Circuit." Id. Prior to Daimler,
controlling precedent in this Circuit made it clear that a foreign bank with a
branch in New York was properly subject to general personal jurisdiction
here .... Under prior controlling precedent of this Circuit, the Bank was subject
to general jurisdiction because through the activity of its New York branch, it
engaged in a "continuous and systematic course of doing business in New York."
Hoffritz [for Cutlery, Inc. v. Amajac, Ltd.], 763 F.2d [55,] 58 [(2d Cir. 1985)].
Therefore, we conclude that the Bank did not waive its personal jurisdiction
objection.
Gucci Am., 768 F.3d at 134-36.
Plaintiff argues that the test applied in Daimler was, in fact, established three
years earlier in Goodyear, 131 S.Ct. at 2851 (2011). See Daimler, 134 S.Ct. at 751 ("In
Goodyear ... we addressed the distinction between general or all-purpose jurisdiction, and
specific or conduct-linked jurisdiction. As to the former, we held that a court may assert
jurisdiction over a foreign corporation 'to hear any and all claims against [it]' only when the
corporation's affiliations with the State in which suit is brought are so constant and pervasive 'as
to render [it] essentially at home in the forum State.' ... Instructed by Goodyear, we conclude
that Daimler is not 'at home' in California[.]" (quoting Goodyear, 131 S.Ct. at 2851 )).
Moreover, that same test was applied by the Second Circuit itself prior to Daimler. See In re
Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 674 (2d Cir. 2013) ("The Supreme Court
recently noted that '[f]or an individual, the paradigm forum for the exercise of general
12
jurisdiction is the individual's domicile; for a corporation, it is an equivalent place, one in which
the corporation is fairly regarded as at horne."' (alteration in original) (quoting Goodyear, 131
S.Ct. at 2853-54)).
Gucci America unequivocally holds, however, that Daimler effected a change in
the law, providing defendants such as the Foreign Banks with a personal jurisdiction defense that
was previously unavailable to them. Gucci Am., 768 F.3d at 135-36. This Court is, of course,
bound by Gucci America. Accordingly, the Foreign Banks have not waived their personal
jurisdiction objection.
B.
Specific Personal Jurisdiction
"In litigation arising under federal statutes that do not contain their own
jurisdictional provisions, ... federal courts are to apply the personal jurisdiction rules of the
forum state, provided that those rules are consistent with the requirements of Due Process."2
Penguin Grp., 609 F.3d at 35 (internal citation omitted).
2
Before analyzing the forum state's rules regarding the exercise of personal jurisdiction, it is
necessary to address the applicability of the nationwide personal jurisdiction provisions in the
RICO statute and the Clayton Act. These federal laws provide the bases for two of Plaintiffs
causes of action.
The Second Circuit has noted that the RICO statute "does not provide for nationwide personal
jurisdiction over every defendant in every civil RICO case, no matter where the defendant is
found .... [A] civil RICO action can only be brought in a district court where personal
jurisdiction based on minimum contacts is established as to at least one defendant." PT United
Can Co. Ltd. v. Crown Cork & Seal Co., 138 F.3d 65, 71 (2d Cir. 1998). Additional defendants
may be subject to nationwide personal jurisdiction, but "[t]his jurisdiction is not automatic[;] [it]
requires a showing that the 'ends of justice' so require." Id. The "ends of justice" requirement is
satisfied where "there is no district with personal jurisdiction over all defendants." Id. at 71 n.5;
see also Daly v. Castro Llanes, 30 F. Supp. 2d 407, 413 (S.D.N.Y. 1998) ("The phrase 'ends of
justice require' has been interpreted to mean that § 1965(b) authorizes an assertion of personal
jurisdiction if, otherwise, the entire RICO claim could not be tried in one civil action.").
Only "if the allegations in the Complaint state[] a viable RICO claim, ... would [it] be proper to
exercise 'ends of justice' RICO jurisdiction," however. Elsevier Inc. v. W.H.P.R., Inc., 692 F.
13
"[C]ontacts with [a] forum may confer two types of jurisdiction- specific and
general." In re Parrnalat Sec. Litig., 376 F. Supp. 2d 449, 453 (S.D.N.Y. 2005) (footnote
omitted). Plaintiff does not contend that there is any basis for the exercise of general jurisdiction
here. See Pltf. Opp. to Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. No. 157) at 1014 (arguing only that "[e]xercising [s]pecific O]urisdiction [o]ver Defendants is [p]roper"); Oct.
24, 2014 Pltf. Ltr. (Dkt. No. 134) at 1 ("General personal jurisdiction is irrelevant here .... ").
"Specific jurisdiction exists when a forum 'exercises personal jurisdiction over a defendant in a
suit arising out of or related to the defendant's contacts with the forum.'" I d. (quoting Metro.
Life Ins. Co., 84 F.3d at 567-68 (internal quotation marks and citation omitted)).
1.
Specific Personal Jurisdiction Under New York Law
New York's long-arm statute provides, in relevant part, that a court may exercise
specific personal jurisdiction over a non-domiciliary who "transacts any business within the state
or contracts anywhere to supply goods or services in the state," where plaintiff's claim arises out
Supp. 2d 297, 315 (S.D.N.Y. 2010); see BWP Media USA Inc. v. Hollywood Fan Sites, LLC,
No. 14 Civ. 121 (JPO), 2014 WL 6077247, at *4 (S.D.N.Y. Nov. 14, 2014) ("Plaintiffs 'cannot
rely upon [the nationwide personal jurisdiction provisions of the RICO statute] to establish
jurisdiction over each of the defendants' if the RICO claim is dismissed." (quoting Cont'l
Petroleum Corp. v. Corp. Funding Partners, LLC, No. 11 Civ. 7801 (PAE), 2012 WL 1231775,
at *8 (S.D.N.Y. Apr. 12, 2012))). Here- as discussed below- Plaintiff's RICO claim is barred
by the statute of limitations and by res judicata. Accordingly, this Court cannot apply the RICO
statute's nationwide personal jurisdiction provisions.
Application ofthe nationwide personal jurisdiction provisions of the Clayton Act would be
improper for the same reason: as discussed below, Plaintiff has failed to state an antitrust claim.
Where there is no valid antitrust claim, it necessarily follows that Plaintiff cannot rely on an
antitrust statute's personal jurisdiction provisions. Cf. id.; Elsevier Inc, 692 F. Supp. 2d at 315.
Because the provisions in the Clayton Act and the RICO statute authorizing nationwide personal
jurisdiction are not applicable here, this Court will "apply the personal jurisdiction rules of the
forum state, provided that those rules are consistent with the requirements of Due Process."
Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 35 (2d Cir. 2010) (internal citations
omitted).
14
of that transaction of business or contract. N.Y. C.P.L.R. § 302(a)(1). To establish personal
jurisdiction under this section, plaintiff must show that "(1) defendant purposefully availed
himself of the privilege of doing business in the forum state such that the defendant could foresee
being brought into court there; and (2) plaintiffs claim arises out of or is related to the
defendant's contacts with the forum state." Aqua Prods., Inc. v. Smartpool, Inc., No. 04 Civ.
5492 (GBD), 2005 WL 1994013, at *5 (S.D.N.Y. Aug. 18, 2005) (citing Helicopteros
Nacionales de Colombia, S.A. v. Hall, 466 U.S. 508,414 (1984); World-Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 297 (1980); Chew v. Dietrich, 143 F.3d 24, 28 (2d Cir. 1998)).
"A court will have personal jurisdiction over a defendant, pursuant to § 302(a)(2),
if the defendant 'commits a tortious act within the state."' Virgin Enters. Ltd. v. Virgin Eyes
LAC, No. 08 Civ. 8564 (LAP), 2009 WL 3241529, at *4 (S.D.N.Y. Sept. 30, 2009) (quoting
N.Y. C.P.L.R. § 302(a)(2)). "[T]he New York Court of Appeals has interpreted [this] subsection
to reach only tortious acts performed by a defendant who was physically present in New York
when he committed the act." Id. (citing Longines-Wittnauer Watch Co. v. Barnes & Reinecke,
Inc., 15 N.Y.2d 443, 460 (1965) ("Any possible doubt on this score is dispelled by the fact that
the draftsmen of section 302 pointedly announced that their purpose was to confer on the court
'personal jurisdiction' over a non-domiciliary whose act in the state gives rise to a cause of
action or, stated somewhat differently, 'to subject non-residents to personal jurisdiction when
they commit acts within the state."') (citations omitted)). "[I]n Bensusan Restaurant Corp. v.
King, the [Second Circuit] declined to deviate from the New York Court of Appeals' decision in
Longines-Wittnauer .... " Id. (citing Bensusan Rest. Corp. v. King, 126 F.3d 25,29 (2d Cir.
1997)).
15
Section 302(a)(3) allows for "a nondomiciliary who 'commits a tortious act
without the state causing injury ... within the state' [to] be brought before a New York court to
answer for his conduct if he has had sufficient economic contact with the State or an active
interest in interstate or international commerce coupled with a reasonable expectation that the
tortious conduct in question could have consequences within the State." McGowan v. Smith, 52
N.Y.2d 268, 273 (1981) (quoting N.Y. CPLR § 302(a)(3)). Under Section 302(a)(3), any nondomiciliary who in person or through an agent '"commits a tortious act without the state causing
injury to person or property within the state"' may be subject to personal jurisdiction if he
"(i) regularly does or solicits business, or engages in any other persistent course of
conduct, or derives substantial revenue from goods used or consumed or services
rendered, in the state, or (ii) expects or should reasonably expect the act to have
consequences in the state and derives substantial revenue from interstate or
international commerce .... "
Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 790-91 (2d Cir. 1999)
(quoting N.Y. CPLR § 302(a)(3)).
2.
Due Process Limits on the Exercise of Specific Personal Jurisdiction
To satisfy the Due Process Clause, "the nonresident generally must have 'certain
minimum contacts ... such that the maintenance of the suit does not offend "traditional notions
of fair play and substantial justice.""' Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014) (quoting
Int'l Shoe Co. v. State of Wash., Office ofUnemployment Comp. and Placement, 326 U.S. 310,
316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457,463 (1940))). "The inquiry [with respect
to specific personal jurisdiction] ... 'focuses on "the relationship among the defendant, the
forum, and the litigation.""' Id. (quoting Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775
(1984) (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977))). Accordingly, for this Court "to
16
exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create
a substantial connection with the forum state." Id.
Moreover, "the relationship [between the defendant's suit-related conduct and the
forum] must arise out of contacts that the 'defendant himself creates with the forum .... " Id. at
1122 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985)) (emphasis in
original). And the "'minimum contacts' analysis looks to the defendant's contacts with the
forum ... itself, not the defendant's contacts with persons who reside there." Id. While "a
defendant's contacts with the forum ... may be intertwined with his transactions or interactions
with the plaintiff or other parties," these relationships, "standing alone, [are] an insufficient basis
for jurisdiction." Id. at 1123. "Due process requires that a defendant be haled into court in a
forum ... based on his own affiliation with the [forum], not based on the 'random, fortuitous, or
attenuated' contacts he makes by interacting with other persons affiliated with the [forum]." Id.
(quoting Burger King, 471 U.S. at 475). In this regard, "[t]he proper question is not where the
plaintiff experienced a particular injury or effect but whether the defendant's conduct connects
him to the forum in a meaningful way." Id. at 1125.
A defendant need not have committed a physical act within the forum state,
however, for his contacts with the forum to be sufficient; the test may also be satisfied where "an
act performed elsewhere[] causes an effect in the [forum]." Eskofot A/S v. E.I. DuPont De
Nemours & Co., 872 F. Supp. 81, 87 (S.D.N.Y. 1995) (citing SEC v. Unifund SAL, 910 F.2d
1028, 1033 (2d Cir. 1990)) (applying minimum contacts analysis in context of Fed. R. Civ. P.
Rule 4(k)(2)). Indeed, in Walden, the Supreme Court discussed at length how the effects of a
defendant's conduct can tie the defendant sufficiently to a forum to permit the exercise of
personal jurisdiction. Justice Thomas explained that
17
[t]he crux of Calder [-a case finding specific personal jurisdiction in California
where a Florida-based paper published a defamatory article about a California
actress-] was that the reputation-based "effects" of the alleged libel connected
the defendants to California, not just to the plaintiff. The strength of that
connection was largely a function of the nature of the libel tort. However
scandalous a newspaper article might be, it can lead to a loss of reputation only if
communicated to (and read and understood by) third persons .... Accordingly,
the reputational injury caused by the defendants' story would not have occurred
but for the fact that the defendants wrote an article for publication in California
that was read by a large number of California citizens. Indeed, because
publication to third persons is a necessary element oflibel, ... the defendants'
intentional tort actually occurred in California. . . . In this way, the "effects"
caused by the defendants' article- i.e., the injury to the plaintiffs reputation in
the estimation of the California public - connected the defendants' conduct to
California, not just to a plaintiff who lived there. That connection, combined with
the various facts that gave the article a California focus, sufficed to authorize the
California court's exercise of jurisdiction.
Walden, 134 S.Ct. at 1123-24 (emphasis in original) (footnote omitted).
In this Circuit, "where 'the conduct that forms the basis for the controversy occurs
entirely out-of-forum, and the only relevant jurisdictional contacts with the forum are therefore
in-forum effects harmful to the plaintiff,"' a court is to employ "an 'effects test,' by which 'the
exercise of personal jurisdiction may be constitutionally permissible if the defendant expressly
aimed its conduct at the forum."' Tarsavage v. Citic Trust Co., Ltd., 3 F. Supp. 3d 137, 145
(S.D.N.Y. 2014) (quoting Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161,
173 (2d Cir. 2013) (citing Calder, 465 U.S. at 789)). It is not sufficient that conduct incidentally
had an effect in the forum, or even that effects in the forum were foreseeable. See id. (citing In
re Terrorist Attacks, 714 F.3d at 674) Instead, the defendant must have intentionally causedi.e., expressly aimed to cause - an effect in the forum through his conduct elsewhere. See id.
(citing In re Terrorist Attacks on Sept. 11, 2001, 538 F.3d 71, 95 (2d Cir. 2008), abrogated on
other grounds by Samantar v. Yousuf, 560 U.S. 305 (2010)).
18
3.
Analysis
Plaintiff alleges that "[t]his Court has personal jurisdiction over each of the
Defendants by virtue of their business activities in this District." (Am. Cmplt. (Dkt. No. 95)
~
12) Plaintiff must demonstrate that the Foreign Banks' suit-related conduct creates minimum
contacts with New York, however, not simply that the Foreign Banks have a presence here or
conduct business activities here in general. Walden, 134 S. Ct. at 1121. General contacts with
New York are not sufficient to establish specific personal jurisdiction. There is precious little in
the Amended Complaint demonstrating a connection between the Foreign Banks' alleged suitrelated conduct and New York, and there are no allegations demonstrating that any such
relationship arose out of contacts that the Foreign Banks created with New York. See id. at
1122-23.
Only two paragraphs in the 72-page Amended Complaint (see Am. Cmplt. (Dkt.
No. 95) ~~ 64-65) even hint at a connection between New York and the Foreign Banks' suitrelated conduct. In those paragraphs, Plaintiff quotes from a June 6, 2013 Wall Street Journal
article reporting that '"several former Barclays derivatives traders and other employees who
worked in the bank's New York office"' are under investigation by the U.S. Department of
Justice, and that "'Barclays has fired several employees ... for their alleged roles in attempted
Libor manipulation."' (Id.
~
64) The Journal article goes on to state that the two Barclays
employees who were fired "'engaged in communications involving inappropriate requests
relating to Libor."' See id.
~
65. As to the Foreign Banks other than Barclays, nothing of this
sort is pled. As to Barclays, these allegations are not sufficient to demonstrate the necessary
connection between its alleged suit-related conduct and New York, much less that any
relationship between this conduct and New York arose out of contacts that Barclays created with
19
New York. See Walden, 134 S.Ct. at 1121-23. Indeed, Plaintiffhas not pled facts suggesting
that the conduct of the two Barclays employees has any connection with the injury suffered by
Solow, or that the misconduct alluded to in the article took place within the relevant time period
-September 12,2008 to October 10,2008, according to Paragraphs 151, 153-54, 157 of the
Amended Complaint.
Accepting the Amended Complaint's allegations that Solow resided in New York
and was injured here, due process requires more for the exercise of personal jurisdiction. The
Foreign Banks' suit-related conduct must tie them to New York itself, not just to a plaintiff who
happens to reside in New York. Walden, 13 4 S. Ct. at 1121-22.
The Amended Complaint likewise does not satisfy the "effects test," which
requires factual allegations demonstrating that the Foreign Banks' suit-related conduct was
'"expressly aimed"' at New York, in addition to having an effect here. Tarsavage, 3 F. Supp. 3d
at 145 (quoting Licci, 732 F.3d at 173). Plaintiff alleges that "[t]he municipal bonds in the
Solow portfolio were issued by New York governmental entities," and conducts a statistical
analysis ofLIBOR's relationship to a New York bond index that is "an index of bonds similar to
those in the Solow portfolio." (Am. Cmplt. (Dkt. No. 95) ~ 156) Plaintiff further alleges that the
Foreign Banks' LIBOR manipulations caused the value of Solow's bond portfolio- which
contained New York municipal bonds- to fall below the minimum required threshold for his
loans' collateral. (Id.
~
163 ("The purported impairment of Plaintiff's bond portfolio, seizure of
the portfolio and cash, the low prices realized in the collateral sale and inflated LIBORdenominated contract and 'default' interest rates and imposition of fees and expenses were the
result of Defendants' collective manipulations of LIB OR.") (emphasis added))
20
Assuming arguendo that these allegations are sufficient to demonstrate an effect
in New York, Plaintiff has not alleged facts demonstrating that the Foreign Banks '"expressly
aimed"' their conduct at New York or its municipal bond markets. See Tarsavage, 3 F. Supp. 3d
at 145 (quoting Licci, 732 F.3d at 173). Accepting that (1) the artificial inflation ofLIBOR
caused interest rates to increase; (2) the increase in interest rates caused the value of Solow's
bond portfolio to fall below the required threshold; and (3) the negative effect on Solow's
portfolio was a foreseeable result of the Foreign Banks' alleged LIBOR manipulation, "the fact
that harm in the forum is foreseeable ... is insufficient for the purpose of establishing specific
personal jurisdiction over a defendant." In re Terrorist Attacks, 714 F.3d at 674. Because the
Amended Complaint does not plead facts demonstrating that the LIBOR manipulation was done
with the express aim of causing an effect in New York, the "effects test" is not satisfied. See
Tarsavage, 3 F.Supp. 3d at 145.
This Court does not have specific personal jurisdiction over the Foreign Banks.
C.
Consent to Personal Jurisdiction
Plaintiff argues that some ofthe Foreign Banks have consented to general
personal jurisdiction inNew York by virtue of their registration with the New York Department
of Financial Services and designation of an agent for service of process inNew York. (Pltf. Opp.
to Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. No. 157) at 4-10) Plaintiff cites a
number of cases for the proposition that such registration and designation amounts to consent to
general personal jurisdiction in New York. See id. None of these cases are on point, however,
because they address registration under provisions ofNew York law different from those under
which the Foreign Banks are registered.
21
The Foreign Banks are registered under New York Banking Law§ 200, which
provides that foreign banks operating in New York must "appoint[] the superintendent and his or
her successors as its true and lawful attorney, upon whom all process in any action or proceeding
against it on a cause of action arising out of a transaction with its New York agency or agencies
or branch or branches, may be served .... " N.Y. Banking Law§ 200(3) (emphasis added). The
plain language of this provision limits any consent to personal jurisdiction by registered banks to
specific personal jurisdiction. See Gliklad v. Bank Hapoalim B.M., No. 115/95/2014 2014 NY
Slip Op 32117 (U), at *5 (Sup. Ct. N.Y. Cnty. Aug. 4, 2014) (Section 200 "provid[es] for the
exercise of specific jurisdiction, not general.").
The cases cited by Plaintiff address different registration and licensing provisions,
which do not contain the same language limiting consent to claims arising out of the activities of
a New York branch or agency.
See,~'
The Rockefeller Univ. v. Ligand Pharms., 581 F. Supp.
2d 461, 464-66 (S.D.N.Y. 2008) (registration under N.Y. Business Corporation Law
§ 1304(6)
constitutes consent to general jurisdiction). Under the plain language of New York Banking Law
§ 200 and the holding in Gliklad - the only case cited that addresses Section 200 -this Court
concludes that the Foreign Banks have not consented to general personal jurisdiction in New
York.
D.
Jurisdiction Premised on Co-Conspirators' Acts
Plaintiff also argues that "[t]he Court may ... exercise personal jurisdiction over
the [Foreign Banks] based on the acts committed by their co-conspirators." (Pltf. Opp. to Motion
to Dismiss for Lack of Personal Jurisdiction (Dkt. No. 157) at 16) To establish that personal
jurisdiction based on the acts of a co-conspirator is appropriate, a plaintiff must demonstrate that
"'(a) the defendant had an awareness of the effects in New York of its activity; (b) the activity of
22
the co-conspirators in New York was to the benefit of the out-of-state conspirators; and (c) the
co-conspirators acting in New York acted at the direction or under the control or at the request of
or on the behalfofthe out-of-state defendant."' Maersk, Inc. v. Neewra, Inc., 554 F. Supp. 2d
424, 442-43 (S.D.N.Y. 2008) (quoting In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d
765, 805 (S.D.N.Y. 2005) (citations and internal quotation marks omitted)).
The Amended Complaint does not plead sufficient facts to satisfy these
requirements. Although Plaintiff repeatedly asserts that the Defendants conspired to injure
Solow (see,~, Am. Cmplt. (Dkt. No. 95) ,-r,-r 33-35, 175-177, 192, 202-204), these allegations
are conclusory, and the Court cannot "credit 'mere conclusory statements' or '[t]hreadbare
recitals of the elements of a cause of action."' Tarsavage, 3 F. Supp. 3d at 144 (quoting Iqbal,
556 U.S. at 678).
Plaintiff attempts to support its conclusory allegations by citing guilty pleas,
settlements, and accompanying admissions, along with "econometric evidence" of Defendants'
LIB OR manipulation. See Pltf. Opp. to Motion to Dismiss (Dkt. No. 119) at 35; Am. Cmplt.
(Dkt. No. 95) ,-r,-r 56-157. Plaintiff has not shown, however, how the banks' guilty pleas,
settlements, or admissions demonstrate a conspiracy to. cause injury to Solow.
As to Plaintiffs "econometric evidence," Plaintiffs theory appears to be that the
LIBOR rates reported during the relevant time period were higher than they would have been
absent a conspiracy among the banks to inflate their LIBOR submissions. However, Plaintiff
concedes that the studies on which it relies concluded that (1) '"[i]fbanks were truthfully
quoting their costs, ... we would expect [their] distributions to be similar"' (id. ,-r 143 (quoting
Connan Snider and Thomas Youle, Does the LIBOR Reflect Banks' Borrowing Costs? (April2,
2010)), and (2) the unexpected pattern of divergence between LIBOR quotes and certain other
23
economic indicators "'cannot establish the presence of a conspiracy or a manipulation of the
LIB OR rate, [although] certain patterns do "flag" such a possibility."' (Id.
~
144 (quoting Rosa
M. Abrantes-Metz, Michael Kraten, Albert D. Metz, and Gim S. Seow, LIBOR Manipulation?,
36 Journal of Banking & Finance 136, 149 (2012)) Analysis that "flags the possibility" of a
conspiracy is not sufficient to meet the plausibility test under Iqbal. See Iqbal, 556 U.S. at 678
(claim for relief must be "plausible on its face").
In any event, Plaintiff has not explained how its allegations are sufficient to
satisfy the necessary elements for co-conspirator personal jurisdiction set forth above. See Pltf.
Opp. to Motion to Dismiss for Lack of Personal Jurisdiction (Dkt. No. 157) at 16. This Court
concludes that personal jurisdiction over the Foreign Banks cannot be predicated on this theory.
E.
Personal Jurisdiction Under Fed. R. Civ. P. 4(k)(2)
Fed. R. Civ. P. 4(k)(2) provides a basis for "the exercise of personal jurisdiction
by a federal district court when three requirements are met: (1) the claim must arise under
federal law; (2) the defendant must not be 'subject to jurisdiction in any state's courts of general
jurisdiction'; and (3) the exercise of jurisdiction must be 'consistent with the United States
Constitution and laws."' Porina v. Marward Shipping Co., 521 F.3d 122, 127 (2d. Cir. 2008)
(quoting Fed. R. Civ. P. 4(k)(2)). Rule 4(k)(2) "fill[s] a gap in the enforcement of federal law for
courts to exercise personal jurisdiction over defendants with sufficient contacts with the United
States generally, but insufficient contacts with any one state in particular." In re Terrorist
Attacks, 349 F. Supp. 2d at 807 (citations and internal quotation marks omitted).
Here, Plaintiff has alleged claims under three federal statutes: the Sherman Act,
the Clayton Act, and the RICO Act. (Am. Cmplt. (Dkt. No. 95) ~ 1).
24
"As to the second element, although the Court has already found that Defendants
are not subject to personal jurisdiction in New York, Plaintiffs have not certified that Defendants
are not subject to jurisdiction in any other state." Tamam v. Fransabank Sal, 677 F. Supp. 2d
720, 731 (S.D.N.Y. 2010). Accordingly, the second prerequisite for application of Rule 4(k)(2)
has not been met. See id. A contrary holding would encourage similarly-situated plaintiffs those suing foreign corporations under federal law- to omit any allegations tying defendants to a
specific state, in hopes of engaging the broader minimum contacts analysis of Rule 4(k)(2),
which only requires contacts with the United States as a whole. See Porina, 521 F.3d at 127.
Because Plaintiff has not alleged all of the elements required for the exercise of personal
jurisdiction under Rule 4(k)(2), this Court declines to apply that provision here.
*
*
*
*
Because this Court does not have personal jurisdiction over the Foreign Banks,
Plaintiffs claims against them will be dismissed. 3
III.
ANTITRUST CLAIM
Plaintiff alleges that the Defendants violated Section 1 of the Sherman Act by
conspiring to "fix[], maintain[] or ma[ke] artificial prices for LIBOR-based financial
instruments, including [Solow's] loans and bond portfolio." (Am. Cmplt. (Dkt. No. 95) ,-r 176)
All Defendants have moved to dismiss this claim, arguing, inter alia, that Plaintiff has failed to
allege an antitrust injury. (Def. Br. (Dkt. No. 115) at 24-29)
3
On February 20, 2015, Plaintiff requested leave to submit a supplemental declaration in
opposition to the Foreign Banks' motion to dismiss for lack of personal jurisdiction. (Dkt. No.
169) Certain of the Foreign Banks object to Plaintiffs proposed supplemental submission. (Dkt.
No. 171) Leave is granted to file the supplemental declaration, but it does not alter the Court's
analysis. While the supplemental declaration provides more information concerning certain
Foreign Banks' general contacts with New York, it does not assist Plaintiff in demonstrating that
the Foreign Banks' suit-related conduct ties them to this forum.
25
A.
Antitrust Injury
Section 1 of the Sherman Act provides that "[e]very contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1. The private right of
action to enforce this provision is set forth in Section 4 ofthe Clayton Act. See 15 U.S.C. § 15.
In order for "[a] private plaintiff ... [to] recover damages under§ 4 ofthe
Clayton Act[,] ... [the] plaintiff must prove the existence of 'antitrust injury, which is to say
injury of the type the antitrust laws were intended to prevent and that flows from that which
makes defendants' acts unlawful."' Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334
(1990) (quoting Brunswick Corp. v. Pueblo Bowl-0-Mat, Inc., 429 U.S. 477, 489 (1977))
(emphasis in original). "[I]njury, although causally related to an antitrust violation, nevertheless
will not qualify as 'antitrust injury' unless it is attributable to an anti-competitive aspect of the
practice under scrutiny .... " Id. "The antitrust injury requirement ensures that a plaintiff can
recover only if the loss sterns from a competition-reducing aspect or effect ofthe defendant's
behavior." Id. at 344 (emphasis omitted). Accordingly, a plaintiff must demonstrate not only an
injury resulting from the defendant's conduct, but also that the injury "'is the type of injury
contemplated by the [antitrust] statute."' Nichols v. Mahoney, 608 F. Supp. 2d 526, 544
(S.D.N.Y. 2009) (quoting Arista Records LLC v. Lime Grp. LLC, 532 F. Supp. 2d 556, 568
(S.D.N.Y. 2007)).
"[P]roof of a~ se violation [of the Sherman Act] and of antitrust injury are
distinct matters that must be shown independently." Atl. Richfield, 495 U.S. at 344 (quotation
omitted). Accordingly, "even in cases involving per se violations [of the Sherman Act], the right
26
of action under § 4 of the Clayton Act is available only to those private plaintiffs who have
suffered antitrust injury." Id.
The Second Circuit "employ[s] a three-step process for determining whether a
plaintiffhas sufficiently alleged antitrust injury." Gatt Commc'ns, Inc. v. PMC Assocs., L.L.C.,
711 F.3d 68, 76 (2d Cir. 2013).
First, the party asserting that it has been injured by an illegal anticompetitive
practice must "identify[ ] the practice complained of and the reasons such a
practice is or might be anticompetitive." [Port Dock & Stone Corp. v. Oldcastle
Ne., Inc., 507 F.3d 117, 122 (2d Cir. 2007).] Next, [courts] identify the "actual
injury the plaintiff alleges." Id. This requires [courts] to look to the ways in
which the plaintiff claims it is in a "worse position" as a consequence of the
defendant's conduct. Brunswick Corp. v. Pueblo Bowl-0-Mat, Inc., 429 U.S.
477, 486 (1977). Finally, [courts] "compar[e]" the "anticompetitive effect of the
specific practice at issue" to "the actual injury the plaintiff alleges." Port Dock,
507 F.3d at 122. It is not enough for the actual injury to be "causally linked" to
the asserted violation. Brunswick, 429 U.S. at 489. Rather, in order to establish
antitrust injury, the plaintiff must demonstrate that its injury is "of the type the
antitrust laws were intended to prevent and that flows from that which makes [or
might make] defendants' acts unlawful." [Daniel v. Am. Bd. of Emergency Med.,
428 F.3d 408, 438 (2d Cir. 2005)] (internal quotation marks omitted).
Gatt Commc'ns, Inc., 711 F.3d at 76.
B.
In re LIBOR-Based Financial Instruments Antitrust Litigation
In In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d 666, 686,
reconsideration denied, 962 F. Supp. 2d 606 (S.D.N.Y. 2013), appeal dismissed, Nos. 13-3565
(L); 13-3636 (Con), 2013 WL 9557843 (2d Cir. Oct. 30, 2013), rev'd and remanded sub nom.
Gelboim v. Bank of Am. Corp., 135 S.Ct. 897 (2015) (the "MDL"), a court in this District
addressed the question of whether plaintiffs sufficiently pled an "antitrust injury" resulting from
Contributor Panel banks' manipulation ofUSD-LIBOR. 4 The MDL consists of"private lawsuits
4
As discussed at length below, the district court in In re LIBOR-Based Fin. Instruments
Antitrust Litig. dismissed plaintiffs' antitrust claim on the ground that they had not pled an
antitrust injury. On reconsideration, the district court denied plaintiffs leave to amend, finding
27
by persons who allegedly suffered harm as a result of the suppression ofLIBOR." In re LIBORBased Fin. Instruments Antitrust Litig., 935 F. Supp. 2d at 676. Plaintiffs in the MDL fall into
four categories: (1) plaintiffs who "purchased in the United States, directly from a [d]efendant, a
financial instrument that paid interest indexed to LIBOR ... [and allegedly] received lower
payments from defendants [due to the suppression ofLIBOR]"; (2) "[plaintiffs] who owned ...
U.S. dollar-denominated debt securit[ies] ... on which interest was payable ... at a rate
expressly linked to the U.S. Dollar Libor rate ... [and allegedly] 'receiv[ed] manipulated and
artificially depressed amounts of interest' [due to the suppression ofLIBOR]"; (3) plaintiffs who
purchased Eurodollar contracts at "supracompetitive prices" because "defendants' suppression of
LIB OR caused Eurodollar contracts to trade and settle at artificially high prices"; and (4)
plaintiffs who held or purchased LIBOR-based financial instruments that paid a rate of return
"directly based on LIBOR," or who purchased fixed-rate based instruments that they "decided to
purchase by comparing the instruments' fixed rate of return with LIBOR .... " See id. at 68184.
In the MDL, "plaintiffs ... alleged that defendants violated the Sherman Act
through a horizontal price-fixing conspiracy .... which [was] ... unlawful ... [in] its effect of
that any amendment would be futile. 962 F. Supp. 2d 606. Plaintiffs appealed, but the Second
Circuit "determined sua sponte that it lack[ed] jurisdiction over [plaintiffs'] appeal because a
final order ha[d] not been issued by the district court ... and the orders appealed from did not
dispose of all the claims in the consolidated action." In re LIBOR-Based Fin. Instruments
Antitrust Litig., 2013 WL 9557843, at *1. The Supreme Court granted certiorari on the
jurisdiction question and reversed in Gelboim v. Bank of Am. Corp. See Gelboim, 135 S.Ct. at
906. The Supreme Court held that the plaintiffs whose antitrust claims were dismissed without
leave to amend are entitled to an immediate appeal of the district court's decision, despite the
continued pendency of certain other claims in the MDL. See id. at 905-06 ("The District Court's
order dismissing the ... complaint for lack of antitrust injury, without leave to amend, had the
hallmarks of a final decision."). Accordingly, the Court "reverse[ d] the judgment of the ...
Second Circuit deeming the District Court's dismissal of the ... complaint unripe for appellate
review, and ... remand[ed] the case for further proceedings[.]" Id. at 906.
28
restraining competition." Id. at 686 n.7. In particular, plaintiffs claimed that "defendants
violated the antitrust laws by conspiring to set LIBOR at an artificial level." Id. at 688.
As to antitrust injury, plaintiffs alleged that
Defendants' anticompetitive conduct had severe adverse consequences on
competition in that [plaintiffs] who traded in LIBOR-Based [financial
instruments] during the Class Period were trading at artificially determined prices
that were made artificial as a result of Defendants' unlawful conduct. As a
consequence thereof, [plaintiffs] suffered financial losses and were, therefore,
injured in their business or property.
Id. at 688 (alterations in original) (citation and quotation marks omitted).
After conducting an exhaustive analysis of the facts concerning LIBOR-setting
and the case law surrounding antitrust injury, Judge Buchwald concluded in a March 29, 2013
opinion that "plaintiffs' allegations d[id] not make out a plausible argument that they suffered an
antitrust injury .... " Id. at 695. "Plaintiffs, therefore, d[id] not have standing to bring claims
pursuant to the Clayton Act." Id. "Accordingly, plaintiffs' antitrust claims [were] dismissed."
In reaching this conclusion, Judge Buchwald found that
[a]lthough [plaintiffs'] allegations might suggest that defendants fixed prices and
thereby harmed plaintiffs, they do not suggest that the harm plaintiffs suffered
resulted from any anticompetitive aspect of defendants' conduct. As plaintiffs
rightly acknowledged at oral argument, the process of setting LIB OR was never
intended to be competitive. Rather, it was a cooperative endeavor wherein
otherwise-competing banks agreed to submit estimates of their borrowing costs to
the BBA each day to facilitate the BBA's calculation of an interest rate index.
Thus, even if we were to credit plaintiffs' allegations that defendants subverted
this cooperative process by conspiring to submit artificial estimates instead of
estimates made in good faith, it would not follow that plaintiffs have suffered
antitrust injury. Plaintiffs' injury would have resulted from defendants'
misrepresentation, not from harm to competition.
Id. at 688 (emphasis added) (internal citations omitted).-
29
In addition to finding that the LIBOR-setting process was a cooperative and not a
competitive exercise, Judge Buchwald concluded that the LIB OR manipulation that Defendants
allegedly engaged in was not anti-competitive in its effects:
[W]ith regard to the market for LIBOR-based financial instruments, plaintiffs
have not alleged that defendants' alleged fixing ofLIBOR caused any harm to
competition between sellers of those instruments or between buyers of those
instruments. Plaintiffs' allegation that the prices ofLIBOR-based financial
instruments "were affected by Defendants' unlawful behavior," such that
"Plaintiffs paid more or received less than they would have in a market free from
Defendants' collusion," might support an allegation of price fixing but does not
indicate that plaintiffs' injury resulted from an anticompetitive aspect of
defendants' conduct. In other words, it is not sufficient that plaintiffs paid higher
prices because of defendants' collusion; that collusion must have been
anticompetitive, involving a failure of defendants to compete where they
otherwise would have. Yet here, undoubtedly as distinguished from most
antitrust scenarios, the alleged collusion occurred in an arena in which defendants
never did and never were intended to compete.
[T]here was similarly no harm to competition in the interbank loan market. As
discussed above, LIBOR is an index intended to convey information about the
interest rates prevailing in the London interbank loan market, but it does not
necessarily correspond to the interest rate charged for any actual interbank loan.
Plaintiffs have not alleged that defendants fixed prices or otherwise restrained
competition in the interbank loan market, and likewise have not alleged that any
such restraint on competition caused them injury. Plaintiffs 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. This theory
is one of misrepresentation, and possibly of fraud, but not of failure to compete.
Id. at 688-89 (footnote and citation omitted). 5
In the absence of a "loss stem[ming] from a competition-reducing aspect or effect
ofthe defendant[s'] behavior," Atl. Richfield, 495 U.S. at 344 (emphasis omitted), Judge
Buchwald concluded that plaintiffs "d[id] not make out a plausible argument that they suffered
5
Contrary to Plaintiffs contention, Judge Buchwald did not "rel[y] exclusively on Defendants'
conduct and not on the effects thereof .... " (Pltf. Br. (Dkt. No. 119) at 33 n.19) Judge
Buchwald considered the effects of Defendants' conduct on the relevant markets.
30
an antitrust injury." In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d at
695. Accordingly, she dismissed Plaintiffs' antitrust claims. Id.
At least one other court in this District has likewise concluded in a LIBOR-fixing
case that plaintiff had failed to plausibly allege antitrust injury. In Laydon v. Mizuho Bank, Ltd.,
No. 12 Civ. 3419 (GBD), 2014 WL 1280464, at *8 (S.D.N.Y. Mar. 28, 2014), the plaintiff
alleged "that he initiated short positions in CME Euroyen TIBOR futures contracts during the
Class Period and suffered net losses on such contracts due to the presence of artificial Euroyen
TIBOR futures prices proximately caused by Defendants' unlawful manipulation and restraint of
trade." Id. (internal citations and quotation marks omitted). Judge Daniels ruled that "[p]laintiff
fail[ ed] to plead an antitrust injury," because he "fail[ed] to plead facts sufficient to establish that
this [conduct] 'is or might be anticompetitive."' Id. (quoting Gatt Commc'ns, Inc., 711 F.3d at
76). "At most, Plaintiff allege[d] that prices were distorted." Id. Judge Daniels found, however,
that "the setting of the USD LIBOR benchmark rate is not competitive; rather it is a cooperative
effort wherein otherwise competing banks agreed to submit estimates of their borrowing costs to
facilitate calculation of an interest rate index." Id. Accordingly, the plaintiffs antitrust claim
was dismissed. Id. at *10.
C.
Analysis
Although Plaintiff claims that "the decision in the LIBOR MDL has no bearing on
the instant case" (Pltf. Br. (Dkt. No. 119) at 32), the theory of antitrust injury in the MDL and in
the instant case is essentially the same. In both actions, plaintiffs claim that defendants
manipulated USD-LIBOR in such a way as to cause plaintiffs to suffer financial losses. The
allegations regarding the manner in which defendants allegedly manipulated LIB OR- through
the submission of artificial rates from Contributor Panel banks to the BBA - are the same in both
31
actions. Compare In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d at 67881, with (Am. Cmplt. (Dkt. No. 95) ~~5-9, 39, 50-137).
Plaintiff attempts to dodge the effect of Judge Buchwald's reasoning and
determinations by alleging in the Amended Complaint that the LIBOR-setting process is
competitive.
See,~'
Am. Cmplt. (Dkt. No. 95) ~~ 39, 44, 38, 39. Plaintiff asserts that the
"[MDL] plaintiffs neglected to allege that the LIBOR setting process was competitive, and in
fact conceded that it was not during oral argument." (Pltf. Br. (Dkt. No. 119) at 24) Plaintiff
argues that- by contrast - it has "specifically allege[ d] that LIB OR is a competitively-set rate,
[and] that Defendants participate in a daily contest in the marketplace, and [Plaintiff] devotes
entire sections of the [Amended Complaint] to explaining the competitive nature of the
industry." (Id.)
In the Amended Complaint, Plaintiff alleges that Defendants "set LIB OR in a
process that produces competitively determined daily USD-LIBOR rates and establishes a daily
contest between the Defendants to, among other things, signal their relative strength in terms of
prestige, credit risk, access to funding, and liquidity." (Am. Cmplt. (Dkt. No. 95) ~ 39) In
support of its claim, Plaintiff alleges that (1) contributor banks are required under BBA rules to
independently exercise their own good faith judgment in determining their individual
submissions, which reflect their daily competitive postures; (2) banks are further required under
BBA rules to keep their submissions confidential before the BBA publishes the daily rate; and
(3) the BBA- through Thomson Reuters- publishes the individual banks' daily submissions in
announcing USD-LIBOR. (Id.
~~
45-48) Plaintiff claims that "[t]he[s]e three key [aspects of the
LIBOR-setting process] were designed to ensure that LIBOR would be based on day-to-day
competition in the interbank funding markets and elsewhere. . . . LIB OR could not reflect and
32
move day-to-day based on actual competitive conditions if it was not based upon independent,
good faith submissions of the individual panel banks." (Id.
~
48)
Judge Buchwald correctly rejected this theory of antitrust injury and portrait of
the LIBOR-setting process as entirely implausible, however, when plaintiffs in the MDL action
moved for leave to amend their antitrust claims after dismissal. See In re LIBOR-Based Fin.
Instruments Antitrust Litig., 962 F. Supp. 2d at 627. In denying leave to amend, Judge
Buchwald noted that "Plaintiffs' allegations [in their proposed second amended complaints]
include new ways of packaging previously known facts, such as arguing that the LIBOR-setting
rules themselves give rise to competition, and new theories for how defendants compete, such as
that they compete over their creditworthiness, that they compete to offer customers the best
interest rate benchmark on financial instruments, or that they compete by 'keeping other banks
honest' and reporting any improper conduct by them." Id. Judge Buchwald concluded,
however, that plaintiffs' new allegations were not plausible and therefore did not sufficiently
allege antitrust injury:
[R]egardless of the creativity they display, none of plaintiffs' allegations make
plausible that there was an arena in which competition occurred, that defendants'
conduct harmed such competition, and that plaintiffs suffered injury as a result.
Even where plaintiffs have identified a market in which defendants are, in fact,
competitors, they have not plausibly alleged that each defendant failed to act in its
independent individual self-interest. In other words, even if we grant that
plaintiffs have alleged a vertical effect -that they suffered harm as a result of
defendants' conduct- they have not plausibly alleged a horizontal effect- that
the process of competition was harmed because defendants failed to compete with
each other or otherwise interacted in a manner outside the bounds of legitimate
competition.
Id. at 627-28.
Similarly here, Plaintiffs allegations that the LIBOR-setting process is
"competitive" are not plausible on their face. Indeed, it is obvious that the LIBOR-setting
33
process is a cooperative and not a competitive exercise. See Laydon, 2014 WL 1280464, at *8
("the setting of the USD LIBOR benchmark rate is not competitive; rather it is a cooperative
effort wherein otherwise competing banks agreed to submit estimates of their borrowing costs to
facilitate calculation of an interest rate index"). Under the BBA rules, each bank was required to
use its own "good faith judgment about the interest rate that [the bank] would be required to pay"
-not to submit rates that were competitive with those submitted by other banks. (Am. Cmplt.
(Dkt. No. 95) ~ 45) Moreover, as the Amended Complaint acknowledges, "a Contributor Panel
bank's LIB OR submissions [were] not [to] be influenced by its motive to maximize profit or
minimize losses in derivatives transactions tied to LIBOR."
ilih ~ 44 (citation and quotation
marks omitted)) This allegation supports the notion that, in setting LIBOR, the banks were not
competing with one another, but instead were participating in a collective exercise aimed at
generating an objective, "good faith" benchmark, based on which there would be competition.
The fact that the benchmark set as a result of the LIBOR-setting process would be a basis for
competition does not mean that the cooperative process of collecting submissions used to set
LIBOR was a competitive exercise. It was not.
Plaintiff argues, however, that "several other aspects of the LIBOR setting
process ... demonstrate that LIBOR setting is a competitive process," including that
(1) Thomson Reuters - an agency independent of the BBA - collects, calculates, and publishes
the daily LIBOR; (2) any bank that trades in the London market can apply to be on a Contributor
Panel; and (3) the interquartile averaging method prevents individual or small groups of banks
from influencing LIBOR with false submissions. (Id. ~ 49)
None of these allegations have anything to do with the issue of whether the
submission process is competitive. The fact that an outside agency performs the ministerial tasks
34
of collecting, calculating, and publishing the rates says nothing about whether the process is
competitive. Likewise, the fact that other banks can apply to join a Contributor Panel does not
demonstrate that rates were being competitively submitted. Similarly, the use of the interquartile
averaging method suggests a collaborative process, rather than a competitive one. To the extent
banks submitted particularly "competitive" rates, those rates would be eliminated as outliers
under the interquartile methodology. The process of averaging the eight rates that were closest
in value suggests an effort to arrive at an appropriate rate through collaboration and consensus,
and not through competition.
The Amended Complaint's allegations that (1) Defendants are "horizontal
competitors across a wide range of financing activities" (id.
~
36); (2) "LIBOR-denominated
interest rates [are used] as a threshold or beginning point for competition among themselves in
the market for loans to their customers and others" (id.
~52);
and (3) "LIBOR is also
instrumental in establishing market prices for many types of interest-bearing debt securities,
including financial instruments that are not specifically LIBOR-denominated" (id.
~53),
add
nothing to the analysis. The fact that Defendants compete in the financial markets, and that
LIB OR may be the starting point for much of that competition, does not demonstrate that the
process of setting LIBOR is a competitive exercise. See In re LIBOR-Based Fin. Instruments
Antitrust Litig., 935 F. Supp. 2d at 688 ("It is of no avail to plaintiffs that defendants were
competitors outside the BBA."). Moreover, nothing in the Amended Complaint suggests thatas a result of the manipulation ofLIBOR- Defendants ceased to compete with one another in
the financial markets.
To the extent that Plaintiff argues that the LIBOR-setting process is competitive
because it is "designed to ensure that LIBOR would be based on competition in the interbank
35
funding markets" (Am. Cmplt. (Dkt. No. 95) ~ 48), that argument is also without merit.
Plaintiffs allegations do not demonstrate that manipulation ofLIBOR had any effect on
competition in those markets. As Judge Buchwald stated, "[i]fLIBOR no longer painted an
accurate picture of the interbank lending market, the injury plaintiffs suffered derived from
misrepresentation, not from harm to competition." In re LIBOR-Based Fin. Instruments
Antitrust Litig., 935 F. Supp. 2d at 692. 6
Because Plaintiff has not plausibly alleged an antitrust injury, Defendants' motion
to dismiss Plaintiffs antitrust claim will be granted. 7
6
Plaintiff argues that this case "is similar to many others attacking index or benchmark price
manipulation." (Pltf. Br. (Dkt. No. 119) at 29) Many of the cases that Plaintiff cites (see id. at
29 n.17) are addressed in Judge Buchwald's decision. In a thorough analysis, she distinguishes
the harm in those cases from the type of injury resulting from the manipulation ofLIBOR. See
In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d at 688, 694 & n.9, 694-95.
The Court finds Judge Buchwald's analysis persuasive and adopts her conclusions here.
7
In a February 20, 2015 letter (Dkt. No. 168), Plaintiff directs this Court's attention to two
recent cases: Gelboim, 135 S.Ct. 897, and In re Foreign Exch. Benchmark Rates Antitrust Litig.,
Nos. 13 Civ. 7789 (LGS), 13 Civ. 7953 (LGS), 14 Civ. 1364 (LGS), 2015 WL 363894 (S.D.N.Y.
Jan. 28, 2015) ("FOREX"). As noted above, in Gelboim the Supreme Court held that the
plaintiffs whose antitrust claims were dismissed in the LIBOR MDL are entitled to immediately
appeal Judge Buchwald's decision. See Gelboim, 135 S.Ct. at 905-06. Nothing in Gelboim
casts doubt on Judge Buchwald's reasoning and conclusions. In FOREX, which involves
allegations of collusion in fixing a foreign exchange benchmark, the court distinguished Judge
Buchwald's determination that the LIBOR-setting process is cooperative and not competitive:
LIBOR [MDL]'s conclusion that the plaintiffs in that case had not demonstrated
antitrust injury was explicitly based on that court's understanding that the
LIBOR-setting process was a "cooperative endeavor wherein otherwisecompeting banks agreed to submit estimates of their borrowing costs ... to
facilitate the ... calculation of an interest rate index." The Fix[- the process of
setting the foreign exchange benchmark at issue in FOREX-] by contrast, is set
by actual transactions in a market where Defendants are supposed to be
perpetually competing by offering independently determined bid-ask spreads.
FOREX, 2015 WL 363894, at *11 (quoting In re LIBOR-Based Fin. Instruments Antitrust Litig.,
935 F. Supp. 2d at 688). The FOREX court found that because the process for setting the foreign
exchange "Fix" involved actual market transactions, it differed from the cooperative LIBOR36
IV.
RICO CLAIMS
Plaintiff also asserts RICO claims, under 18 U.S.C. §§ 1962(c) and (d). (Am.
Cmplt. (Dkt. No. 95) ,-r,-r 181-82) Plaintiff alleges that "Defendants' collective association,
including through their participation together as members of the BBA's USD-LIBOR panel,
constitutes a RICO enterprise-in-fact," and that "[ e]very member of the enterprise participated in
the process of misrepresenting its costs ofborrowing to the BBA." (Id. ,-r 192)
Defendants have moved to dismiss Plaintiffs RICO claims, arguing that (1) the
claims are time-barred; (2) Plaintiff seek an improper extraterritorial application of RICO;
(3) Plaintiffhas not alleged a sufficiently direct relationship between the claim and Solow's
injury; (4) Plaintiff has not adequately plead predicate acts of racketeering; (5) the Amended
Complaint fails to state a RICO conspiracy claim; (6) Plaintiffs claims are barred by res
judicata; and (7) Plaintifflacks standing to assert claims on Solow's behalf. See Def. Br. (Dkt.
No. 115) at 13-58; Def. Br. (Dkt. No. 117). As discussed below, this Court concludes that
Plaintiffs RICO claims are barred by the statute oflimitations and by res judicata, and does not
reach Defendants' remaining arguments.
A.
Plaintiff's RICO Claims are Time-Barred 8
"RICO claims are subject to a four-year statute of limitations." Koch v. Christie's
setting process in a crucial way. This conclusion, if anything, supports Judge Buchwald's
reasonmg.
8
In deciding a motion to dismiss on statute oflimitations grounds, "[a] [d]istrict [c]ourt [may]
t[ ake] judicial notice of ... media reports, state court complaints, and regulatory filings" as long
as "[t]he court d[oes] 'not take judicial notice of the documents for the truth of the matters
asserted in them, but rather to establish that the matters [had] been publicly asserted.'" Staehr v.
Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 424 (2d Cir. 2008) (quoting Staehr v. Hartford Fin.
Servs. Grp., Inc., 460 F. Supp. 2d 329, 335 (D. Conn. 2006) vacated and remanded, 547 F.3d 406
(2d Cir. 2008)); see id. at 425 ("[I]t is proper to take judicial notice of the fact that press
coverage, prior lawsuits, or regulatory filings contained certain information, without regard to
37
Int'l PLC, 699 F.3d 141, 148 (2d Cir. 2012) (citations omitted). "'Federal courts ... generally
apply a discovery accrual rule when a statute is silent on the issue, as civil RICO is .... "' Id.
(quoting Rotella v. Wood, 528 U.S. 549, 555 (2000)). Accordingly, "a RICO claim accrues upon
the discovery of the injury alone." Id. at 150.
"Under Second Circuit precedent, courts apply an 'inquiry notice' analysis to
determine when a plaintiff has discovered his injury[.]" In re LIBOR-Based Fin. Instruments
Antitrust Litig., 935 F. Supp. 2d at 698.
"Inquiry notice- often called 'storm warnings' in the securities context- gives
rise to a duty of inquiry 'when the circumstances would suggest to an investor of
ordinary intelligence the probability that she has been defrauded.' In such
circumstances, the imputation ofknowledge will be timed in one of two ways:
(i) '[i]f the investor makes no inquiry once the duty arises, knowledge will be
imputed as of the date the duty arose'; and (ii) if some inquiry is made, 'we will
impute knowledge of what an investor in the exercise of reasonable diligence[]
should have discovered concerning the fraud, and in such cases the limitations
period begins to run from the date such inquiry should have revealed the fraud."'
Id. (quoting Koch, 699 F.3d at 151 (quoting Lentell v. Merrill Lynch & Co., 396 F.3d 161, 168
(2d Cir. 2005))).
Here, Plaintiff alleges that it was Defendants' manipulations ofLIBOR that
caused Solow's injury. (Am. Cmplt. (Dkt. No. 95) ~ 163 ("The purported impairment of
[Solow's] bond portfolio, seizure of the portfolio and cash, the low prices realized in the
collateral sale and inflated LIBOR-denominated contract and 'default' interest rates and
imposition of fees and expenses were the result of Defendants' collective manipulations of
LIBOR .... ") As Plaintiff recognizes, however, a May 29, 2008 Wall Street Journal article
"detailed" the "divergence between [credit-default spreads ('CDS')] and LIBOR." (Id.
see id.
~~
~
131;
135-36; Shioleno Decl. (Dkt. No. 116) Ex. A) The article- Carrick Mollenkamp &
the truth of their contents, in deciding whether so-called 'storm warnings' were adequate to
trigger inquiry notice .... ").
38
Mark Whitehouse, Study Casts Doubt on Key Rate - WSJ Analysis Suggests Banks May Have
Reported Flawed Interest Data for Libor, Wall. St. J., May 29, 2008, at AI- states that
Major banks are contributing to the erratic behavior of a crucial global lending
benchmark, a Wall Street Journal analysis shows.
The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P.
Morgan Chase & Co. and UBS AG are among the banks that have been reporting
significantly lower borrowing costs for the London interbank offered rate, or
Libor, than what another market measure suggests they should be. Those five
banks are members of a 16-bank panel that reports rates used to calculate Libor in
dollars.
That has led Libor, which is supposed to reflect the average rate at which banks
lend to each other, to act as if the banking system was doing better than it was at
critical junctures in the financial crisis. The reliability of Libor is crucial to
consumers and businesses around the world, because the benchmark is used by
lenders to set interest rates on everything from home mortgages to corporate
loans.
(Shioleno Decl. (Dkt. No. 116), Ex. A)
Given this article, by at least May 29, 2008, Plaintiff was on inquiry notice of the
fact that LIB OR rates may have been manipulated. See In re LIBOR-Based Fin. Instruments
Antitrust Litig., 935 F. Supp. 2d at 708, 710 ("Here, not only were LIBOR and each bank's
LIBOR submission publicly available on a daily basis, but benchmarks of general interest rates
and each bank's financial health were also publicly available .... [T]he Wall Street Journal
analysis [by Mollenkamp and Whitehouse] compared the LIB OR fixes and quotes to these
benchmarks to conclude that LIBOR was likely artificial. In other words, by May 29, 2008,
plaintiffs' investigative work had already been done for them and had been published in the
pages of the Wall Street Journal. ... [P]laintiffs were on inquiry notice of their injury by May
29, 2008 .... "); see also BPP Ill., LLC v. Royal Bank of Scot. Grp., PLC, No. 13 Civ. 0638
(JMF), 2013 WL 6003701, at *8 (S.D.N.Y. Nov. 13, 2013) ("By May 29, 2008, ... there were at
least seven articles in major publications [including the May 29, 2008 Wall Street Journal article]
39
reporting that there was substantial evidence to support the conclusion that LIBOR was
artificially low and had been so for some time. Those articles were sufficient 'storm warnings'
to 'awaken inquiry' into the possibility that U.S. Dollar LIBOR was not, as Defendants allegedly
represented to the BPP Plaintiffs to induce them into the swap agreement, 'a legitimate and
reliable market-based interest rate."').
Plaintiff alleges no facts suggesting that Solow undertook an inquiry into the
cause of his injury- the Defendants' alleged LIBOR manipulation- over the next four years.
Accordingly, Solow "[is] deemed to have knowledge of [his] injury at the point at which the duty
to inquire arose, and the period of limitations starts to run on that date." In re LIBOR-Based Fin.
Instruments Antitrust Litig., 935 F. Supp. 2d at 698.
Plaintiff argues, however, that the statute of limitations should be tolled, because
Defendants subsequently provided reassurances that LIBOR was not being manipulated, and
because they fraudulently concealed their manipulation ofLIBOR. (Pltf. Br. (Dkt. No. 119) at
20-28) Because (1) the LIB OR manipulation scheme had been made public, and (2) Defendants'
"reassurances" that no manipulation had occurred would have been entirely self-serving,
Plaintiffs tolling argument fails. See In re LIBOR-Based Fin. Instruments Antitrust Litig., 935
F. Supp. 2d at 710-11 ("Here, plaintiffs have not adequately alleged fraudulent concealment. For
one, they did not 'remain[] unaware of [defendants'] violation during the limitations period,' as
they were on notice no later than May 29, 2008, that they had likely been injured. Moreover,
because of this, they could not have reasonably relied on defendants' and the BBA's
reassurances that LIBOR was accurate. For the same reason, defendants' alleged manipulation
[ofLIBOR] was not self-concealing .... Here, ... Thomson Reuters published daily both the
final LIB OR fix and the quotes from each of the panel banks. A person of ordinary intelligence
40
could have reviewed the submitted quotes along with numerous articles analyzing these quotes
and explaining why they were likely artificial. Under these circumstances, plaintiffs have not
adequately alleged fraudulent concealment."); see also BPP Ill., LLC, 2013 WL 6003701, at *8-9
("Plaintiffs' arguments [regarding the statute of limitations] ... are unpersuasive. First,
Plaintiffs point to the fact that the BBA itself defended the integrity of LIB OR in some of the
very articles highlighting LIBOR's potential unreliability. Affirmative public denials of
wrongdoing can, in some circumstances, weigh against a finding of inquiry notice. But a
plaintiff may rely on such reassuring representations only if it is reasonable to do so. Here, given
the BBA's 'strong incentive to maintain market confidence in LIBOR's integrity,' and the fact
that its public denials flew in the face of the data marshaled by the newspaper articles discussed
above, a reasonable person would have at least inquired further before accepting the BBA's
representations .... Plaintiffs' fraudulent concealment argument ... fails for the same reason
that they cannot rely on the discovery rule: However reasonable it may have been to rely on
Defendants' statements about the reliability ofLIBOR in early 2008, it was no longer reasonable
to do so by late May 2008 in the face of substantial reports to the contrary.") (internal citations
omitted).
Because Solow was on inquiry notice as of May 29, 2008, and no inquiry was
pursued, RICO claims had to be brought by May 29, 2012. Plaintiffs RICO claims were not
filed until February 13, 2013, however. (Cmplt. (Dkt. No. 1)) Accordingly, those claims are
time-barred.
B.
Plaintiff's RICO Claims Are Also Barred By Res Judicata
Even if Plaintiffs RICO claims were not barred by the statute of limitations, they
would be barred by res judicata, given the judgment in the state court action brought by Citibank
41
against Solow. 9 (Def. Br. (Dkt. No. 117) at 8-18)
The doctrine of res judicata provides that
"a valid, final judgment, rendered on the merits, constitutes an absolute bar to a
subsequent action between the same parties, or those in privity with them, upon
the same claim or demand. It operates to bind the parties both as to issues
actually litigated and determined in the first suit, and as to those grounds or issues
which might have been, but were not, actually raised and decided in that action.
The first judgment, when final and on the merits, thus puts an end to the whole
cause of action."
Epperson v. Entm't Express, Inc., 242 F.3d 100, 108-09 (2d Cir. 2001) (quoting Saylor v.
Lindsley, 391 F.2d 965, 968 (2d Cir. 1968) (citations omitted)). 10 "The policies underlying res
judicata reflect the sensible goal that where possible all related claims be resolved in one
proceeding .... " (Id. at 109).
"Whether a claim is precluded depends on '"whether the same transaction or
connected series of transactions is at issue, whether the same evidence is needed to support both
claims, and whether the facts essential to the second were present in the first.""' Blue Ridge
Invs., LLC v. Republic of Arg., 902 F. Supp. 2d 367, 382 (S.D.N.Y. 2012) (quoting Woods v.
Dunlop Tire Corp., 972 F.2d 36, 38 (2d Cir. 1992) (quoting N.L.R.B. v. United Techs. Corp.,
706 F.2d 1254, 1260 (2d Cir. 1983))); see TechnoMarine SA, 758 F.3d at 499 ("Whether a claim
that was not raised in the previous action could have been raised therein depends in part on
9
Defendants argue that "[r]es judicata applies to all of [Plaintiffs] claims, including [its]
Sherman Act claim .... " See Def. Reply Br. (Dkt. No. 121) at 2. Defendants assert that res
judicata bars Plaintiffs antitrust claim because Plaintiff was required to raise LIBOR
manipulation as a defense in the state court action. (Id. at 2-4) Plaintiff argues, however, that
federal courts have exclusive jurisdiction over Sherman Act claims, and that accordingly res
judicata does not bar Plaintiffs antitrust claim. (Pltf. Br. (Dkt. No. 120) at 5) Having concluded
that Plaintiffs antitrust claim must be dismissed for failure to allege an antitrust injury, this
Court does not reach the question of whether Plaintiffs antitrust claim is barred by res judicata.
10
"A court may consider a res judicata defense on a Rule 12(b)(6) motion to dismiss when the
court's inquiry is limited to the plaintiffs complaint, documents attached or incorporated therein,
and materials appropriate for judicial notice." TechnoMarine SA v. Giftports, Inc., 758 F.3d
493, 498 (2d Cir. 2014).
42
whether the same transaction or connected series of transactions is at issue, whether the same
evidence is needed to support both claims, and whether the facts essential to the second were
present in the first." (internal quotation marks omitted)). "[W]hatever legal theory is advanced,
when the factual predicate upon which claims are based are substantially identical, the claims are
deemed to be duplicative for purposes of res judicata." Berlitz Schs. of Languages of Am., Inc.
v. Everest House, 619 F.2d 211, 215 (2d Cir. 1980).
1.
Final Judgment on the Merits
Here, there is no question that there has been a final judgment on the merits. On
March 24, 2011, Citibank obtained a judgment against Solow in New York Supreme Court
requiring him to pay more than $100 million in damages to Citibank. (Am. Cmplt. (Dkt. No. 95)
,-r 162; Ruffino Decl. (Dkt. No. 118), Ex. D) The judgment was affirmed by the First Department
on February 23, 2012. See Citibank, N.A. v. Solow, 92 A.D.3d 569, 570 (1st Dep't), leave to
appeal denied, 19 N.Y.3d 807 (2012). Solow paid the judgment in full on May 23, 2012. (Am.
Cmplt. (Dkt. No. 95) ,-r,-r 162-63)
2.
Same Transaction or Occurrence
The prior proceeding also arose out of the same transactions and occurrences
alleged here. In that proceeding, Citibank claimed that
[t]h[e] case [arose] out of Solow's failure to repay in full loans from Citibank and
to provide cash collateral for letters of credit issued by Citibank. The loans were
made and the letters of credit were issued or continued in existence under two
lines of credit (one for $490,000,000 and one for $13,000,000) and were secured
by securities in custodial accounts held by Citibank. Citibank has liquidated its
collateral and has set off against cash on deposit in Solow's accounts at Citibank,
all as allowed under the governing documents and applicable law. The
$13,000,000 line of credit has now been repaid, but more than $67,000,000 in
loans and over $18,500,000 in letters of credit remain outstanding under the
$490,000,000 line of credit.
43
Citibank determined that, as of September 23, 2008, the market value of the
Pledged Collateral had fallen below $463,000,000 for five consecutive business
days.
[] By letter dated September 24, 2008, Citibank provided notice of a Margin Call
to Solow demanding that Solow deposit within two business days collateral
acceptable to Citibank with a market value of not less than $11,319,494 ....
[] By letter dated September 26, 2008, Citibank informed Solow that the market
value of additional Pledged Collateral required to satisfy the Margin Call had
increased to $13,561,794 and stated that if Solow did not furnish by the close of
business on September 26, 2008 additional Pledged Collateral in an amount
sufficient to cause the market value of all Pledged Collateral in Citibank's
possession to equal or exceed $463,000,000, Citibank might begin to sell any or
all ofthe Pledged Collateral.
[]By letter dated September 30, 2008, Citibank demanded the immediate
payment of all amounts outstanding under the $13,000,000 Note and stated that
Solow's obligations thereunder that were not paid by October 2, 2008 would bear
interest at the overdue rate set forth in the $13,000,000 Note. Citibank infonned
Solow that it might begin to sell any or all of the Pledged Collateral at any time to
satisfy Solow's obligations under the $13,000,000 Note.
[]By a second letter dated September 30, 2008, Citibank demanded the
immediate payment of all amounts outstanding under the $490,000,000 Note and
indicated that Solow's obligations thereunder that were not paid by September 30,
2008 would bear interest at the overdue rate set forth in the $490,000,000 Note.
Citibank informed Solow that it might begin to sell any or all of the Pledged
Collateral at any time to satisfy Solow's obligations under the $490,000,000 Note.
[] Between October 7 and November 3, 2008, Citibank sold all saleable assets
from the Pledged Accounts on the open market for a total, net of any commissions
and fees, of$415,120,803.10, and applied this amount to Solow's loan
obligations.
[]On October 9 and October 13, 2008, interest in the aggregate amount of
$15,261.46 was earned on account of the Pledged Collateral, and Citibank applied
this amount to Solow's loan obligations.
[] On October 6, November 3, and November 13, 2008, Citibank set off a total of
$4,247,786.23 against cash on deposit in accounts maintained by Solow at
Citibank. Of this amount, Citibank applied $2,099,802.93 to Solow's outstanding
principal loan obligations and $2,147,983.30 to Solow's accrued interest
· obligations.
[]Following these applications, the $13,000,000 Note was paid in full and the
44
outstanding principal balance due under the $490,000,000 Note was reduced to
$67,094,168.56 (the "Loan Shortfall").
[] By letter to Solow dated November 18, 2008, Citibank demanded immediate
payment of the Loan Shortfall and all other obligations due under the 2008 Loan
Documents. With respect to the Letters of Credit, Citibank demanded, without
limitation, that Solow deposit cash collateral in the amount of $18,582,168.49 to
secure his reimbursement obligations under the Letters of Credit, replace the
Letters of Credit with letters of credit from another financial institution, or cause
the Letters of Credit to be cancelled with the consent of the beneficiaries.
[] To date, Solow has failed to pay the Loan Shortfall and his other obligations
and has failed to collateralize, replace, or cause to be cancelled the outstanding
Letters of Credit.
(Ruffino Decl. (Dkt. No. 118) Ex. L ("Cmplt.") ~~ 6, 48-58)
This same series of "transactions and occurrences" gives rise to Plaintiffs claims
here. See Am. Cmplt. (Dkt. No. 95) ~~ 9, 147-49, 159-60. Moreover, in the state court action,
Solow litigated Citibank's declaration of default, sale of collateral, and imposition of default
interest rates, arguing - inter alia- that the value of the collateral had been determined in bad
faith. See Citibank, N.A., 92 A.D.3d at 569-70; Aug. 28,2013 Rufino Decl. (Dkt. No. 118) Ex.
A ("Mar. 26, 2010 State Court Decision") at 6-13; id. Ex. B ("Solow Answer")~~ 79-87. The
state court rejected Solow's arguments on the merits. (Mar. 26, 2010 State Court Decision (Dkt.
No. 118) at 13) Although Plaintiff now asserts a new legal theory- that the declaration of
default, low sale price of the collateral, and default interest rates are all related to Citibank' s and
the other Defendants' manipulation ofLIBOR- alternate legal theories are not sufficient to
avoid the res judicata effect of a prior judgment. See Berlitz Schs., 619 F .2d at 215.
3.
Same Parties or Their Privies
The next issue is whether this action involves the same parties or their privies.
"[C]ourts of [New York] have found that the concept of privity 'requires a flexible analysis of
the facts and circumstances of the actual relationship between the party and nonparty in the prior
45
litigation[.]'" Syncora Guar. Inc. v. J.P. Morgan Sec. LLC, 110 A.D.3d 87, 93 (1st Dep't 2013)
(quoting Evergreen Bank v. Dashnaw, 246 A.D.2d 814, 816 (3d Dep't 1998)); see also
Amalgamated Sugar Co. v. NL Indus., Inc., 825 F.2d 634, 640 (2d Cir. 1987) ("The doctrine of
privity, which extends the res judicata effect of a prior judgment to nonparties who are in privity
with the parties to the first action, is to be applied with flexibility.") (citation omitted).
There is no question that Defendant Citibank, N.A., was a party to the state court
action. See Citibank:, N.A., 92 A.D.3d at 570. As to Solow, Plaintiff claims that it is the
assignee of Solow's claims for injuries arising out of Citibank' s declaration of default on his
loans in September 2008. See Am. Cmplt. (Dkt. No. 95) ~ 1. Plaintiff is therefore in privity with
Solow for res judicata purposes. See Savini v. Sheriff of Nassau Cnty., 209 F. Supp. 946, 952
(E.D.N.Y. 1962) ("[I]t is abundantly clear that the defense of res judicata applies against an
assignee as it does against his assignor.") (citations omitted); In re Slocum ex rel. Nathan A. v.
Joseph B., 183 A.D.2d 102, 103 (3d Dep't 1992) ("Under current New York law, privity of a
nonparty to a prior litigation with a party to that litigation [for res judicata purposes] refers to 'a
relationship with [the] party to the prior litigation such that his own rights or obligations in the
subsequent proceeding are conditioned in one way or another on, or derivative of, the rights of
the party to the prior litigation.'") (alteration in In re Slocum) (quoting D' Arata v. New York
Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 664 (1990)). Accordingly, Plaintiffs RICO claims
against Citibank: are barred by res judicata.
The other Defendants were not named in the prior state court action, but may
properly be considered in privity with Citibank: for res judicata purposes. Plaintiffs theory is
that Citibank: and its co-defendants conspired to manipulate LIBOR and, in doing so, caused
Plaintiffs injuries. With respect to its RICO claims, Plaintiff alleges that "Defendants, in
46
concert and with the assistance of brokers and co-conspirators, made false statements to the BBA
for the purpose and with the effect of manipulating LIBOR to suit their needs of the moment."
(Am. Cmplt. (Dkt. No. 95) ~ 193; see also id.
~
5 ("This case arises from the collusion to
manipulate and manipulation ofLIBOR for the U.S. dollar .... "); id.
~
6 ("Defendants conspired
to, and did, manipulate USD-LIBOR by falsely reporting to the BBA the actual interest rates at
which the Defendant banks expected they could borrow funds- i.e., their true costs of borrowing
-on a daily basis .... By acting together and in concert to knowingly falsely report borrowing
costs, Defendants colluded to manipulate and manipulated USD-LIBOR .... "); id.
~
9
("Notwithstanding the fact that Solow was at all times current on [his] loans, at a time when
Defendants' collusion and manipulations caused LIBOR to be artificially inflated, Citibank
declared Solow's bond portfolio collateral to be inadequate for having dropped below the
required minimum value, declared a technical default, seized the bond portfolio and sold it off
including to itself and on information and belief to other defendants, at prices that were
artificially low as a result of their collusion and manipulation ofUSD-LIBOR, and further
imposed a LIBOR-denominated 'default' interest rate rather than the LIBOR-denominated
contract rate."); id.
~
33 ("Various other persons, firms and corporations, unknown and not
named as Defendants, have participated as co-conspirators with Defendants and have performed
acts and made statements in furtherance of the conspiracy.")) Plaintiff further alleges that
"[e]ach of the Defendants named herein acted as the agent or joint-venturer of or for the other
Defendants with respect to the acts, violations and common course of conduct alleged herein."
(Id. ~ 34)
Accordingly, "[a]lthough [Citibank's co-defendants] w[ere] not named ... in [the
prior] suit ... , the pleadings are sufficient to support a finding of privity- i.e., the legal
47
conclusion that the relationship between the parties is sufficiently close to warrant claim
preclusion. Courts have held that alleged co-conspirators are 'in privity' with one another for res
judicata purposes." Discon Inc. v. NYNEX Corp., 86 F. Supp. 2d 154, 166 (W.D.N.Y. 2000)
(internal citation omitted); see also In re Teltronics Servs., Inc., 762 F.2d 185, 192 (2d Cir. 1985)
("LM Ericsson TeleComm, Inc., was alleged to be a co-conspirator in the second Southern
District action filed by Teltronics against the Ericsson defendants, and is entitled to the res
judicata effect ofthat decision."); Fonseca v. Columbia Gas Sys., Inc., 37 F. Supp. 2d 214, 228
(W.D.N.Y. 1998) ("I find that a sufficiently close relationship existed between the alleged coconspirators to preclude plaintiff from proceeding against any of them in this subsequent,
separate action."); Somerville House Mgmt., Ltd. v. Arts & Entm't Television Network, 92 Civ.
4705 (LJF), 1993 WL 138736, at *2 (S.D.N.Y. Apr. 28, 1993) ("[N]ewly-added defendants may
assert a res judicata defense as long as the 'newly-added defendants have a sufficiently close
relationship to the original defendant.' ... [A] number of courts have found that alleged coconspirators can be considered 'in privity' with one another for res judicata purposes .... ")
(quoting Official Publ'ns, Inc. v. Kable News Co., 811 F. Supp. 143, 147 (S.D.N.Y. 1993))
(citations omitted); McLaughlin v. Bradlee, 599 F. Supp. 839, 847 (D.D.C. 1984) ("The
defendants here may defensively assert claim preclusion against McLaughlin even though none
of the prior suits named all six of them as defendants .... [T]he defendants in the present suit are
closely related to those named in the 1981 complaints[] ... [and] there is only one alleged
conspiracy."), affd, 803 F.2d 1197 (D.C. Cir. 1986).
"Res judicata operates to preclude claims, rather than particular configurations of
parties; Plaintiffs addition of new defendants, in the context of allegations of their involvement
in the series of alleged deprivations, does not entitle [it] to revive the previously-[decided]
48
claims," Cameron v. Church, 253 F. Supp. 2d 611, 623 (S.D.N.Y. 2003), or to litigate claims
"which might have been, but were not, actually raised and decided in [the earlier] action."
Epperson, 242 F.3d at 108 (citation and quotation marks omitted); cf. Official Publ'ns, Inc., 811
F. Supp. at 14 7 ("The doctrine of res judicata also bars litigation of the same causes of action
against defendants who were known to plaintiff at the time the first action was filed but were not
named where the newly-added defendants have a sufficiently close relationship to the original
defendant. . . . Where the 'new' defendants are sufficiently related to one or more of the
defendants in the previous action which arises from the same transaction all defendants may
invoke res judicata") (citations omitted).
4.
Plaintiff's RICO Claims Could Have
Been Asserted in the Prior Action
Plaintiff argues, however, that its RICO claims are not barred by res judicata,
because they could not have been asserted as counterclaims in the state court action. See Pltf.
Br. (Dkt. No. 120) at 8. Plaintiff is mistaken. Solow could have asserted- as counterclaims in
the state court action- the same RICO claims that Plaintiff asserts here. See Tafflin v. Levitt,
493 U.S. 455, 458, 467 (1990) ("[S]tate courts have concurrent jurisdiction over civil RICO
claims."). In bringing RICO counterclaims, Solow could also have joined Citibank's codefendants as parties. See N.Y. C.P.L.R. § 3019(a) ("A counterclaim may be any cause of action
in favor of ... [a] defendant[] ... against ... a plaintiff and other persons alleged to be liable.").
"While New York does not have a compulsory counterclaim rule, a party is not free to remain
silent in an action in which he is the defendant and then bring a second action seeking relief
inconsistent with the judgment in the first action by asserting what is simply a new legal theory."
Henry Modell & Co. v. Minister, Elders & Deacons of Reformed Protestant Dutch Church of
City ofN.Y., 68 N.Y.2d 456, 461 (N.Y. 1986) (internal citation omitted); Santiago v. Lalani, 256
49
A.D.2d 397,399 (2d Dep't 1998) (same); Se Dae Yang v. Korea First Bank, 247 A.D.2d 237,
237-38 (1st Dep't 1998) (same). Because Plaintiffs RICO claims arise out of the same
transactions and occurrences as those at issue in the state court action, those claims could have
and should have been pursued in that action. Cf. Bin Saud v. Bank ofN.Y., 734 F. Supp. 628,
633 (S.D.N.Y. 1990), affd sub nom. Saud v. Bank ofN.Y., 929 F.2d 916 (2d Cir. 1991)
("[W]hen a party fails to raise the defense of fraud in an initial action, a subsequent collateral
challenge to an adverse judgment rendered in that initial action under the guise of a fraud based
RICO claim may be barred by res judicata.").
Plaintiff also argues that Solow could not have raised claims related to LIBOR
manipulation in the earlier state court action because he "had no knowledge of any of the instant
claims prior to or even while the earlier lawsuit was pending." (Pltf. Br. (Dkt. No. 120) at 8)
"As a general rule, newly discovered evidence does not preclude the application of res judicata,"
however. Saud, 929 F.2d at 920 (citing Guerrero v. Katzen, 774 F.2d 506, 508 (D.C. Cir. 1985)).
"Exceptions to this rule exist when the evidence was either fraudulently concealed or when it
could not have been discovered with due diligence." Id.
Here - as the Amended Complaint acknowledges, and as this Court recounted in
finding Plaintiffs RICO claims time-barred- the Wall Street Journal reported on May 29, 2008
- several years before the state trial court entered judgment against Solow- that Defendants had
been "reporting significantly lower borrowing costs for the London interbank offered rate, or
Libor, than what another market measure suggests they should be," and that as a res~lt, LIBOR
was artificially low. (Shioleno Decl. (Dkt. No. 116), Ex. A; see also BPP Ill., LLC, 2013 WL
6003701, at *8 ("By May 29, 2008, ... there were at least seven articles in major publications
[including the May 29, 2008 Wall Street Journal article] reporting that there was substantial
50
evidence to support the conclusion that LIBOR was artificially low and had been so for some
time.").
According to the Amended Complaint, press reports concerning Defendants'
possible manipulation of the LIB OR rate continued in subsequent years. Another flurry of media
reports concerning this issue appeared in mid-March 2011- also before the state trial court had
entered judgment against Solow. According to Plaintiff, a "public revelation regarding
government investigations into possible LIBOR manipulation occurred on March 15, 2011,"
when Defendant UBS disclosed in an SEC filing that it had received subpoenas from the SEC,
the CFTC, and the U.S. Department of Justice "in connection with investigations regarding
submissions to the BBA." (Id. ,-r 81 (citation, quotations marks, and brackets omitted)) UBS
disclosed that "the investigations focus on whether there were improper attempts by UBS, either
acting on its own or together with others, to manipulate LIBOR rates at certain times." (Id.
(citation, quotations marks, and brackets omitted))
On March 16, 2011, the Financial Times reported that
UBS, Bank of America, Citigroup, and Barclays had received subpoenas from
U.S. law enforcement agencies "probing the setting of' LIBOR "between 2006
and 2008." The Financial Times further noted that investigators had "demanded
information from" WestLB, and that the previous fall, "all16 members of the
committee that helped the [BBA] set the dollar LIBOR rate during 2006-08 received
informal requests for information."
(Id. ,-r 82) Plaintiff asserts that on March 17, 2011, Bloomberg reported that "Barclays, Citigroup
and Bank of America had received subpoenas from U.S. authorities investigating whether some
firms manipulated the setting ofLIBOR and Defendants WestLB and Lloyds had been contacted
by the authorities." (Id. ,-r 83 (citation, quotations marks, and brackets omitted)) According to
Plaintiff, on March 23, 2011, Bloomberg reported that Defendants Citigroup, Deutsche Bank, Bank
of America, and JPMorgan had been asked by U.S. authorities "to make employees available to
51
testify as witnesses in a probe of potential interest-rate manipulation in connection with the ongoing
LIBOR investigation." (Id.
~
84 (citation and quotation marks omitted)) All of these articles
were published prior to the state trial court's entry of judgment against Solow, and put Solow on
notice of the LIBOR-manipulation scheme that Plaintiff alleges here.
Even accepting Plaintiff's allegation that Solow did not know that the media
reports concerning Defendants' LIBOR manipulation were true, these news reports put Solow on
inquiry notice. With the exercise of due diligence, he could have learned the details of the
LIBOR manipulation and asserted his claims accordingly. Because Solow "had sufficient
information to create a duty of further investigation," Plaintiff may not avoid the effects of res
judicata. See Saud, 929 F.2d at 921 (holding that RICO claims were barred by res judicata;
"[E]ven if Saud did not know the full extent of the Bank's alleged fraud at the time the Guaranty
Action was commenced, his pleadings in that suit demonstrated that he had sufficient
information to create a duty of further investigation. . . . Indeed, given the substantial amount of
money at stake in the Guaranty Action, Saud had a strong incentive to actively litigate his
defense and further uncover evidence of fraud. Having failed to undertake that inquiry, Saud is
chargeable with full knowledge of the fraud.") (citing Armstrong v. McAlpin, 699 F.2d 79, 88
(2d Cir. 1983) ("The test as to when fraud should with reasonable diligence have been
discovered is an objective one .... '[W]here the circumstances are such as to suggest to a person
of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if
he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts
which call for investigation, knowledge of the fraud will be imputed to him.'" (citing Higgins v.
Crouse, 147 N.Y. 411, 416 (1895))).
*
*
*
*
Plaintiff's RICO claims will be dismissed because they are barred by the
52
applicable statute of limitations and by res judicata.
V.
STATELAWCLAIM
"[U]nder 28 U.S.C. § 1367(c), a district court may decline to exercise
supplemental jurisdiction if it has dismissed all claims over which it has original jurisdiction."
Schaefer v. Town of Victor, 457 F.3d 188, 210 (2d Cir. 2006) (citing Carnegie-Mellon Univ. v.
Cohill, 484 U.S. 343, 350 (1988)). "[W]hen all federal claims are eliminated in the early stages
of litigation, the balance of factors generally favors declining to exercise pendent jurisdiction
over remaining state law claims and dismissing them without prejudice." Tops Mkts., Inc. v.
Quality Mkts., Inc., 142 F.3d 90, 103 (2d Cir. 1998) (emphasis omitted) (citing Carnegie-Mellon
Univ., 484 U.S. at 350). There is no reason to deviate from this rule here. Accordingly, the
Court declines to exercise supplementary jurisdiction and will dismiss Plaintiffs remaining state
law claim under N.Y. Gen. Bus. Law§ 340.
VI.
LEAVE TO AMEND
Plaintiff requests leave to amend in the event that this Court grants Defendants'
dismissal motion. (Pltf. Br. (Dkt. No. 119) at 55) Leave to amend should be "freely give[n] ...
whenjustice so requires." Fed. R. Civ. P. 15(a)(2). District courts "ha[ve] broad discretion in
determining whether to grant leave to amend .... " Gurary v. Winehouse, 235 F.3d 793, 801 (2d
Cir. 2000). Leave to amend may properly be denied in cases of "'undue delay, bad faith or
dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of allowance of the
amendment, futility of amendment, etc."' Ruotolo v. City ofN.Y., 514 F.3d 184, 191 (2d Cir.
2008) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)); see also Murdaugh v. City ofN.Y.,
No. 10 Civ. 7218 (HB), 2011 WL 1991450, at *2 (S.D.N.Y. May 19, 2011) ("Although under
53
Rule 15(a) ofthe Federal Rules of Civil Procedure leave to amend complaints should be 'freely
given,' leave to amend need not be granted where the proposed amendment is futile.") (citations
omitted).
Given that Plaintiffs RICO claims are barred by the statute oflimitations and res
judicata, it is clear that any amendment would be futile. Accordingly, leave to amend is denied
as to those claims.
As to Plaintiffs antitrust claim, it appears unlikely that Plaintiff can plead facts
sufficient to cure the defects noted in this opinion. Moreover, in In re LIBOR-Based Fin.
Instruments Antitrust Litig., 962 F. Supp. 2d at 627-28, Judge Buchwald found that the attempt
to amend the antitrust claim was futile. Nevertheless, this Court will permit Plaintiff to move to
amend the Amended Complaint within thirty days of this decision.
CONCLUSION
For the reasons stated above, Defendants' motions to dismiss the Amended
Complaint are granted. Any motion for leave to file a second amended complaint is to be filed
by April30, 2015. The Clerk of the Court is directed to terminate the motions (Dkt. Nos. 114,
139).
Dated: New York, New York
March 31, 2015
SO ORDERED.
Paul G. Gardephe
United States District Judge
54
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