Maragos v. Bank of America Corporation et al

Filing 103

MEMORANDUM AND ORDER: For the foregoing reasons, the plaintiffs' motions to remand are denied. (Signed by Judge Naomi Reice Buchwald on 12/27/2013) Filed In Associated Cases: 1:11-md-02262-NRB, 1:13-cv-02297-NRB. **Docketed in 11-md-2262 as per Chambers. (mro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------X
SALIX CAPITAL US INC.,
Plaintiff,
-against -

MEMORANDUM AND ORDER

BANC OF AMERICA SECURITIES LLC,
ET AL.

13 Civ. 4018 (NRB)
13 Civ. 7005 (NRB)
13 Civ. 2297 (NRB)

Defendants.
----------------------------------X

----------------------------------X
THE CHARLES SCHWAB CORP., ET AL.,
Plaintiff,
-against BANK OF AMERICA CORP., ET AL.,

Defendants.
----------------------------------X
----------------------------------X
GEORGE MARAGOS,
Plaintiff,
-against BANK OF AMERICA CORP., ET AL.,
Defendants.
----------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

This Memorandum and Order addresses three cases, two of
which were transferred to this Court by the Judicial Panel on
Multidistrict Litigation (“JPML”) since they arose out of the

same

factual

issues

as

Instruments Litigation

the

In

re

LIBOR-Based

Financial

(“In re LIBOR”), 935 F. Supp. 2d 666

(S.D.N.Y. 2013), and the third of which was accepted by this
Court as a related case following removal.

In each of these

cases, the respective plaintiffs seek to remand their action to
state court, asserting that this Court lacks jurisdiction under
either 12 U.S.C. § 632 (“the Edge Act”) or 28 U.S.C. §§ 1330,
1441, and 1603 (“the Foreign Sovereign Immunities Act” or “the
FSIA”).
federal

For the reasons provided below, we find that there is
jurisdiction

under

the

Edge

Act.

Furthermore,

even

assuming that the Edge Act did not confer federal jurisdiction
over

the

plaintiffs’

claims,

this

jurisdiction pursuant to the FSIA.

Court

could

still

retain

The plaintiffs’ motions for

remand are therefore denied.
BACKGROUND
We will discuss the facts underlying each of the three
cases in turn.
I.

Salix Capital US Inc. v. Banc of America Securities LLC,
et al., 13 Civ. 4018
Salix is a Delaware corporation with its principal place of

business in New York.1

Salix Am. Compl. ¶ 15.

Salix brought its

1
Salix brought its complaint as an assignee of several hedge funds that shut
down in 2009: FrontPoint Relative Value Opportunities Fund, L.P.; FrontPoint
Volatility Opportunities Fund GP, L.P.; FrontPoint Volatility Opportunities

-2-

claims as the assignee of investment funds (“the Funds”) that
entered into interest rate swaps with several banks, each of
whom are named as defendants, between December 2007 and February
Id. ¶¶ 5–6.

2008.

In these arrangements, the Funds would

contract with one of the defendant banks to receive floatingrate (variable) payments linked to the London InterBank Offered
Rate (“LIBOR”),2 and the Funds would in turn pay the counterparty
bank a sum based on a fixed interest rate.

Id. ¶ 6–7.

The

swaps at issue were executed by the Funds’ managers in New York,
and the counterparties were also located in New York.

Id. ¶¶

18–22.
Salix filed its first summons and complaint against the
defendants in New York State Supreme Court on May 20, 2013.

In

this

of

complaint,

contract,
above,

as

the

based

on

well

as

plaintiff
the
for

filed

individual
unjust

swap

for

breach

contracts

enrichment,

interference, and civil conspiracy.
197–353.

claims

fraud,

discussed
tortious

Salix Original Compl. ¶¶

The core of the complaint was that the defendants, all

of which were banks that submitted rates to the U.S. Dollar
LIBOR panel and three of which -- Bank of America, Citibank, and

Fund, L.P.; and FrontPoint Partners, L.P.
Salix was also an assignee of
several individuals who acted as managers of these funds.
2
In certain documents cited by the Court, the acronym “LIBOR” is occasionally
written as “Libor,” and when quoting those sources, we use whichever spelling
appears in the original. 

-3-

JPMorgan

Chase

chartered,

(“the

Edge

intentionally

Act

banks”)

suppressed

--

LIBOR

are

federally

by

submitting

artificially low rates to the British Bankers’ Association (“the
BBA”)3.

Id. ¶¶ 269–70.

In so doing, the defendants allegedly

profited by ensuring that they would be able to pay Salix a
reduced interest rate in swap transactions while receiving the
higher fixed rate already promised by the plaintiff.
3.

See id. ¶

Moreover, Salix asserts that the artificially low rates of

return on investments that were keyed to LIBOR caused the Funds
significant damages, and the Funds ultimately shut down in 2009.
Id. ¶¶ 13–14.
On June 12, 2013, the defendants filed a notice of removal
and

removed

the

case

to

this

Court.

In

the

notice,

the

defendants asserted that there was federal jurisdiction over the
See Salix

matter pursuant to either the Edge Act or the FSIA.
Notice

of

complaint

Removal
on

June

¶¶

13–32.

27,

2013.

Salix
The

then

gravamen

filed
of

an

the

amended

complaint

remained the same as the original, but the plaintiff replaced
The

Royal

Bank

of

Scotland

Group

plc

(“RBS

Group”)

defendant with The Royal Bank of Scotland plc (“RBS”).

as

a

See

3
Other opinions of this Court have discussed the setting of LIBOR in greater
detail. See e.g., In re LIBOR-Based Fin. Instruments Litig., 935 F. Supp. 2d
666, 678–80 (S.D.N.Y. 2013) (describing the process by which certain banks
submit interest rates to the BBA, and how the BBA in turn calculates LIBOR on
a daily basis based on these submissions).

-4-

Salix Am. Compl. ¶ 34.

Salix next filed a motion for remand on

July 11, 2013, asserting that there was no federal jurisdiction
under either the Edge Act or the FSIA and requesting that the
case be returned to New York state court.

See generally Pl.’s

Mem. of Law in Supp. of Mot. to Remand (“Salix Mem.”).
II.

The Charles Schwab Corp., et al. v. Bank of America Corp.,
et al., 13 Civ. 7005
The Schwab plaintiffs, a collection of fourteen entities,4

are no strangers to this Court.
was

addressed

separately

in

and

plaintiffs.

In

apart

re

Indeed, their original pleading

LIBOR,

from

the

in

which

other

935 F. Supp. 2d at 676.

they

purported

were

treated

classes

of

This Court dismissed the

Schwab plaintiffs’ federal antitrust, RICO, and Cartwright Act
claims,

and

declined

to

remaining state-law claims.

exercise

jurisdiction

over

their

Id. at 677.

Thereafter, on April 29, 2013, the Schwab plaintiffs filed
a new complaint in California State Superior Court against the
sixteen bank defendants composing the U.S. Dollar LIBOR panel,
including

the

Edge

Act

banks.

The

complaint

asserted

ten

4
The fourteen Schwab plaintiffs are as follows: (1) The Charles Schwab
Corporation; (2) Charles Schwab Bank, N.A.; (3) Charles Schwab & Co., Inc.;
(4) Schwab Short-Term Bond Market Fund; (5) Schwab Total Bond Market Fund;
(6) Schwab U.S. Dollar Liquid Assets Fund; (7) Schwab Money Market Fund; (8)
Schwab Value Advantage Money Fund; (9) Schwab Retirement Advantage Money
Fund; (10) Schwab Investor Money Fund; (11) Schwab Cash Reserves; (12) Schwab
Advisor Cash Reserves; and (13) Schwab YieldPlus Fund, the contingent
interests of which have passed to (14) Schwab YieldPlus Fund Liquidation
Trust.

-5-

grounds

for

relief,

alleged

violations

including

of

common-law

California

contract
law,

statutory

claims,
alleged

and

violations of Sections 11, 12, and 15 of the Securities Act of
1933.

Schwab

plaintiffs

Compl.

claim

¶¶

that

329-397.

the

Like

defendants’

Salix,

the

suppression

Schwab

of

LIBOR

caused them to experience financial losses; however, the damages
alleged

by

the

Schwab

plaintiffs

were

not

based

on

swap

transactions, but rather on the plaintiffs’ direct purchase of
LIBOR-based

financial

instruments.

Id.

¶

14–15,

289–319.

According to the complaint, the suppressed LIBOR figure resulted
in the plaintiffs receiving artificially low returns on their
investments.

Id.

The defendants then filed a notice of removal in the U.S.
District Court for the Northern District of California.
the

case

in

the

Salix,

defendants

claimed

proper under both the Edge Act and the FSIA.
Removal

¶¶

responded

1–2.
by

On

filing

July
a

24,

motion

2013,
to

the

remand

that

As was

removal

was

Schwab Notice of
Schwab
the

case

plaintiffs
back

to

California state court, arguing that removal under either the
Edge Act or the FSIA was improper.

See generally Pls.’ Mem. P.

& A. in Supp. of Mot. to Remand (“Schwab Mem.”).

The California

District Court deferred ruling on the Schwab plaintiffs’ motion

-6-

until the JPML ruled on whether the case, along with the motion
for remand, should be transferred to this Court.
On October 2, 2013, the JPML ordered that, pursuant to 28
U.S.C. § 1407, the Schwab plaintiffs’ case should be transferred
to this Court because it “shar[es] factual issues arising from
allegations concerning defendants’ participation in the British
Bankers’ Association (BBA) London Interbank Offered Rate (Libor)
panel.”

In re LIBOR-Based Fin. Instruments Antitrust Litig.,

MDL No. 2262, slip op. at 2 (J.P.M.L. Oct. 2, 2013).

On October

29, 2013, this Court granted the Schwab plaintiffs’ application
to reinstate their motion to remand their case to California
Superior

Court.

In

deciding

their

motion

for

remand,

we

considered both the parties’ original moving papers, as filed in
the Northern District of California, as well as supplemental
briefing

materials

submitted

in

accordance

with

this

Court’s

direction.
III. Maragos v. Bank of America Corp., et al., 13 Civ. 2297
George Maragos (“Maragos”) is the Comptroller of the County
of Nassau, New York, and in his official capacity, he filed this
action in the Supreme Court of New York on November 27, 2012.
The sixteen banks that submitted rates to the U.S. Dollar LIBOR
panel, including the Edge Act banks, were named as defendants.

-7-

Similar to the complaint in Salix, the allegations at the
core of Maragos are swap transactions in which the plaintiff
claims

damages

on

account

of

receiving

payments

at

The

swap

transactions

at

issue

were

between

lower

Id. ¶¶ 8–

interest rate than “true” LIBOR would have provided.
9.

a

the

Nassau

County Interim Finance Authority (“NIFA”), on behalf of Nassau
County,

and

bank

counterparties.

One

of

these

bank

counterparties is also a submitter to the U.S. Dollar LIBOR
panel

(UBS

AG),

but

the

other

counterparties

are

not.

Nevertheless, Maragos named as defendants all sixteen banks that
allegedly suppressed LIBOR through their roles as members of
U.S. Dollar LIBOR panel.
of

action

against

Id. ¶ 58.

these

Maragos asserted two causes

defendants:

common-law

violation of New York General Business Law § 349.

fraud

and

Id. ¶¶ 77–94.

On December 21, 2012, a subset of the defendants, including
the Edge Act banks, filed a notice for removal in the U.S.
District Court for the Eastern District of New York, claiming
federal jurisdiction under the Edge Act and the FSIA.
Notice of Removal ¶¶ 1–2.

Maragos

On January 18, 2013, the Honorable

Arthur D. Spatt so ordered the plaintiff’s voluntary dismissal
of defendants RBS Group and WestLB AG (“Portigon”), pursuant to
Fed.

R.

Civ.

P.

41(a)(1)(A)(i).

Maragos

then

moved

in

the

Eastern District of New York to remand the case back to New York
-8-

state court, asserting that the action was not removable under
either the Edge Act or the FSIA.

Before that court ruled on

Maragos’s remand motion, the JPML transferred the case to this
Court, stating that there was “no question that the action has
significant
MDL.”

factual

overlap

with

the

actions

already

in

the

In re LIBOR-Based Fin. Instruments Antitrust Litig., MDL

No. 2262, slip op. at 2 (J.P.M.L. Apr. 1, 2013).

Thus, the

plaintiff’s motion for remand as it was originally briefed in
the Eastern District of New York is now before us for decision.
*

*

*

As discussed above, the defendants in these cases are not
identical: while the plaintiffs in Schwab and Maragos sued all
or nearly all of the U.S. Dollar LIBOR panel banks, Salix named
fewer defendants, most (but not all) of which were its direct
counterparties

in

LIBOR-based

swap

transactions.5

However,

because of the similarity of the complaints’ allegations and the
commonality

of

the

defendants’

removal

arguments,

the

Court

conducted a single oral argument for all three cases on December
4, 2013.

5
The exceptions to Salix’s decision to sue only those banks with which it
contracted are RBS and UBS AG.
Although Salix did not have any agreements
with these banks, the plaintiff’s amended complaint quotes liberally from
those banks’ settlement agreements with governmental authorities regarding
the fixing of LIBOR. See Salix Am. Compl. ¶¶ 72–98, 136.

-9-

DISCUSSION
A defendant may remove a civil action from state to federal
court “only if [the case] could have originally been commenced
Allstate Ins. Co. v. Ace Sec. Corp., No. 11

in federal court.”

Civ. 1914(LBS), 2011 WL 3628852, at *3 (S.D.N.Y. Aug. 17, 2011);
see 28 U.S.C. § 1441(a).

“If a case is removed and a federal

district court determines that it lacks jurisdiction over the
matter,

it

must

be

remanded.”

Allstate

Ins.

Co.

v.

CitiMortgage, Inc., No. 11 Civ. 1927(RJS), 2012 WL 967582, at *2
(S.D.N.Y. Mar. 13, 2012).
“On a motion to remand, the party seeking to sustain the
removal,

not

the

party

seeking

remand,

demonstrating that removal was proper.”
F.

Supp.

Commercial

730,

732

Workers

(S.D.N.Y.
Union,

1994);

Local

bears

the

burden

of

Hodges v. Demchuk, 866

see

919,

also

AFL-CIO

United
v.

Food

&

CenterMark

Props. Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994).
In light of this burden and the limited jurisdiction of federal
courts, we must resolve all doubts against removability.
Purdue

Pharma

L.P.

v.

Kentucky,

704

F.3d

208,

213

(2d

See
Cir.

2013); In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab.
Litig., 488 F.3d 112, 124 (2d Cir. 2007).
At oral argument, the parties agreed as a threshold matter
that either the Edge Act or the FSIA may act as an independently
-10-

sufficient basis for removal of these cases.
at 5:10-6:6, Dec. 4, 2013.

Tr. of Oral Arg.

Thus, we address the defendants’ two

arguments for federal jurisdiction in turn.
I.

The Edge Act
The

jurisdictional

grant

of

the

Edge

Act

states,

in

relevant part:
“[A]ll suits of a civil nature at common law or in
equity to which any corporation organized under the
laws of the United States shall be a party, arising
out of transactions involving international or foreign
banking . . . or out of other international or foreign
financial operations, either directly or through the
agency, ownership, or control of branches or local
institutions in dependencies or insular possessions of
the United States or in foreign countries, shall be
deemed to arise under the laws of the United States,
and the district courts of the United States shall
have original jurisdiction of all such suits; and any
defendant in any such suit may, at any time before the
trial thereof, remove such suits from a State court
into the district court of the United States . . . .”.
12 U.S.C. § 632.

Thus, to claim federal jurisdiction under the

Edge Act, a party must establish that: (1) the suit is civil,
(2) a corporation organized under the laws of the United States
is a party to the suit, and (3) the suit arises out of either
(a) transactions involving international or foreign banking or
(b) other international or foreign financial operations.

See

Am. Int’l Grp. v. Bank of Am. Corp., 712 F.3d 775, 780 (2d Cir.
2013) (“AIG”); Bayerische Landesbank v. HSBC Holdings PLC, No.

-11-

13 Civ. 3906(AT), 2013 WL 6144762, at *2 (S.D.N.Y. Nov. 18,
2013).
The plaintiffs do not dispute that the defendants meet the
first and second elements for Edge Act jurisdiction.

Thus, we

will focus squarely on the “arises out of” requirement.

At oral

argument, the parties agreed with the Court’s analysis that,
under

this

third

“operations”

element,

prong

are

the

“transactions”

logically

distinct

prong

and

Arg.

at

6:7–11;

see

also

Sealink

Funding

the

independently
See Tr. of

sufficient to support removal under the Edge Act.
Oral

and

Ltd.

v.

Bear

Stearns & Co., No. 12 Civ. 1397(LTS)(HBP), 2012 WL 4794450, at
*4 (S.D.N.Y. Oct. 9, 2012) (emphasizing that the two prongs
represent

alternative

avenues

for

federal

jurisdiction).

Therefore, we will first determine the conduct out of which
these cases arise, and then we will decide whether such conduct
constitutes either a transaction or an operation that confers
federal jurisdiction under the Edge Act.
A. These cases “arise out of” the setting of LIBOR.
Two

of

the

three

sets

of

plaintiffs

contend

in

their

briefing papers that the relevant transactions or operations for
determining Edge Act jurisdiction are the actual swaps with or
purchases from individual bank defendants.

See Salix’s Mem. of

Law in Supp. of Mot. to Remand at 12 (“Salix Mem.”) (“Salix’s
-12-

claims ‘arise out of’ swaps entered between U.S.-based Funds and
U.S.-based

National

Banks

in

the

United

States

.

.

.

.”);

Schwab’s Nov. 4, 2013 Letter in Supp. of Mot. to Remand (“Schwab
Letter”) at 2 (“The focus must . . . be on the nature and
location

of

Plaintiffs’

investments

in

LIBOR-based

financial

instruments issued or sold by the National Bank Defendants.”).6
The defendants counter that the plaintiffs’ claims arise out of
the setting of LIBOR itself.

See

Mem. of Law in Opp’n to

Salix’s Mot. to Remand (“Salix Opp’n”) at 10 (“The claims in
this action arise from the alleged manipulation of LIBOR . . .
.”); Defs.’ Mem. of P. & A. in Opp’n to Schwab’s Mot. to Remand
(“Schwab Opp’n”) at 15 (“The alleged manipulation of LIBOR in
London

by

the

national

banks

and

their

mostly

foreign

co-

defendants is the very essence of this action.”); Mem. of Law in
Opp’n to Maragos’s Mot. to Remand and in Supp. of Defs.’ CrossMot.

for

a

Stay

(“Maragos

Opp’n”)

at

11

(beginning

their

argument by noting that “the conduct complained of [is] the
allegedly inaccurate fixing of LIBOR”).

6
Maragos does not take a position regarding whether his case arises out of
the setting of LIBOR or the actual swap transactions between NIFA and bank
counterparties. He argues that, regardless of the relevant conduct, neither
the setting of LIBOR nor the swap transactions at issue are the sort of
“transactions” or “operations” covered by the Edge Act. See Mem. of Law in
Supp. of Maragos’s Mot. to Remand (“Maragos Mem.”) at 4–9.
We address the
assertion that the setting of LIBOR is not conduct falling under the ambit of
the Edge Act in Part I.B, infra.

-13-

We

agree

with

the

defendants.

First,

in

each

of

the

operative complaints, the plaintiffs either state explicitly or
imply that their causes of actions arise out of the setting of
LIBOR.

Schwab

See

Compl.

¶

5

(“The

case

arises

from

the

manipulation of LIBOR for the U.S. dollar . . . .”); Maragos
Compl. ¶ 1 (“This cases arises from manipulation of the London
Interbank Offered Rate (“LIBOR”) by various prominent financial
institutions.”); Salix Am. Compl. ¶ 3 (“The [defendants] abused
their control over Libor in order to reap massive profits at the
expense of investors like the [plaintiff].”).
the

plaintiffs

counterparties

sued
to

LIBOR

their

panel

banks

financial

who

Second, each of
were

transactions:

not

direct

the

Schwab

plaintiffs and Maragos broadly sued all or nearly all of the
panel banks, and Salix sued RBS and UBS AG, two banks with which
Salix had never transacted directly.
importantly,

the

plaintiffs

agreed

Third, and perhaps most
at

oral

argument

that

if

there had been no manipulation of LIBOR, these cases would never
have

been

brought.

Tr.

of

Oral

Arg.

at

7:14–16.

This

acknowledgement demonstrates that even if each of the plaintiffs
had sued only those panel banks with which they had entered into
contracts, those hypothetical cases would still “arise out of”
the setting of LIBOR.

-14-

The

plaintiffs

suggest

that

this

“interpretation

of

the

Edge Act would eviscerate the rule that the Edge Act must be
read

narrowly.”

exists.

Salix

at

11.

attempts

“Judicial

Mem.

However,

to

construe

generated a variety of disparate results.”
4794450, at *5.

the

no

such

rule

Edge

Act

have

Sealink, 2012 WL

While some courts here in the Southern District

have employed the narrow view urged by the plaintiffs, others
have endorsed the idea that the Edge Act should sweep broadly.
Compare Weiss v. Hager, No. 11 CV 2740(VB), 2011 WL 6425542, at
*3 (S.D.N.Y. Dec. 19, 2011) (calling for a narrow interpretation
of § 632) and Bank of N.Y. v. Bank of Am., 861 F. Supp. 225, 232
(S.D.N.Y. 1994) (same) with Bank of Am. Corp. v. Lemgruber, 382
F.

Supp.

2d

200,

215

(S.D.N.Y.

2005)

(calling

for

a

broad

interpretation of the same statute) and In re Lloyd’s Am. Trust
Fund

Litig.,

928

F.

Supp.

333,

340

(S.D.N.Y.

1996)

(same).

Regardless of whether we view the Edge Act through a restrictive
or an expansive lens, these actions “arise out of” the setting
of LIBOR in the purest sense of the phrase: without the alleged
manipulation of the rate, the cases would not have been filed.
Thus, even if there was a narrow construction rule, we would
reach the same conclusion.
Further, the plaintiffs caution that our interpretation of
the Edge Act would confer federal jurisdiction “over any claim
-15-

against a national bank relating in any way to Libor.”

Salix

Mem. at 11; see also Schwab Mem. at 12 (suggesting that finding
jurisdiction

based

on

the

setting

of

LIBOR

would

confer

jurisdiction over “any claim relating in any way to the setting
of LIBOR”).

Such a concern is misplaced.

As discussed above,

these are not cases that relate to LIBOR in some tangential or
incidental sense.

The essence of the plaintiffs’ claims is that

they were harmed because of the defendants’ alleged manipulation
of LIBOR.

A determination that these cases “arise out of” the

setting of LIBOR does not portend a great expansion of Edge Act
jurisdiction; rather, it is a common-sense assessment of where
these cases “originate” and “stem from.”

Black’s Law Dictionary

122 (9th ed. 2009) (defining the verb “arise”).
Finally, the plaintiffs’ briefs cite the Second Circuit’s
recent decision in AIG as a significant limitation on the scope
of the Edge Act’s jurisdictional grant.
Schwab Letter at 1-2.

See Salix Mem. at 6–7;

We understand AIG as inserting a formal

nexus requirement into the Edge Act: section 632 only confers
federal jurisdiction if the suit “arise[s] out of an offshore
banking

or

financial

corporation.”

transaction

of

that

federally

chartered

AIG, 712 F.3d at 784 (emphasis added); see also

Dexia SA/NV v. Bear, Stearns & Co., Inc., No. 12 Civ. 4761(JSR),
2013 WL 2136508, at *3 (May 17, 2013) (applying AIG to find that
-16-

the federal chartered bank defendant must “itself engage in the
foreign

banking

transactions

on

the

basis

of

which

the

defendants [seek] removal”); Racepoint Partners, LLC v. JPMorgan
Chase Bank, Nos. 06 CIV. 2500 & 2501(MGC), 2006 WL 3044416, at
*2–3 (S.D.N.Y. Oct. 26, 2006) (finding that an international
transaction that was to be used as evidence, rather than as the
central conduct out of which the case arises, is insufficient to
confer federal jurisdiction under the Edge Act); Lazard Frères &
Co. v. First Nat. Bank of Maryland, No. 91 Civ. 0628 (KMW), 1991
WL 221087, at *1 (S.D.N.Y. Oct. 15, 1991) (“[A] district court
cannot find that it has § 632 jurisdiction merely because there
was

a

federally

chartered

bank

involved,

there

were

banking

activities, and there were foreign parties.”).
But the holding of AIG proves unavailing for the plaintiffs
here.
bank

There is a clear nexus between the federally chartered
defendants

arise;

Bank

and

of

America,

undisputedly

(1)

defendants

all

in

the

conduct

Citibank,

federally
three

out

of

of
and

which

JPMorgan

chartered
the

cases

these

actions

Chase

are

corporations,

before

the

(2)

Court

(as

discussed above), and (3) submitters to the U.S. Dollar LIBOR
panel.

See British Bankers’ Ass’n, US Dollar Panel (May 2012),

http://www.bbalibor.com/panels/usd.
these

cases

arise

out

of

Because

submissions
-17-

to

we

the

conclude
LIBOR

that

panel

--

including those by the Edge Act banks -- there is clearly a
sufficient nexus between the relevant parties and the relevant
conduct to confer Edge Act jurisdiction under AIG.
Thus, we find that the cases sub judice “arise out of” the
defendants’ allegedly misleading submissions to the LIBOR panel.
These submissions are the core of the plaintiffs’ complaints -without this alleged misconduct, there would be no cases at all.
Our

interpretation

of

the

Edge

Act

here

application of the statutory language.
an

impediment

to

federal

is

a

common-sense

Furthermore, AIG is not

jurisdiction

here,

as

there

are

federally chartered bank defendants who directly engaged in the
setting of LIBOR, the conduct out of which these cases arise.
B. The setting of LIBOR
financial operation.”
The

plaintiffs

assert

is

an

that,

“international

even

if

the

or

Court

foreign

were

to

decide that these cases arise out of the setting of LIBOR, this
activity

does

not

constitute

an

“international

financial operation” under the Edge Act.7
of

Law

in

(“Defendants’

Supp.

of

Libor

Mot.

to

Remand

submissions

cannot

or

foreign

See Salix’s Reply Mem.
(“Salix
meet

Reply”)
the

at

8

‘financial

operations’ prong of the Edge Act.”); Reply in Further Supp. of

7
The plaintiffs also contend that the setting of LIBOR would not qualify as a
“transaction involving international or foreign banking.”
However, because
we find that there is jurisdiction under the operations prong of the Edge
Act, we do not address those arguments.

-18-

Schwab’s Mot. to Remand (“Schwab Reply”) at 10 (“[T]he setting
of LIBOR is not a ‘financial operation’ within the Edge Act’s
ambit.”); Reply Mem. of Law in Further Supp. of Maragos’s Mot.
to Remand and in Opp’n to Defs.’ Cross-Mot. for a Stay (“Maragos
Reply”) at 9 (“Defendants have cited no precedent suggesting
that anything involved with the setting of LIBOR satisfies the
jurisdiction requirements of the Edge Act.”).

In response, the

defendants claim that the fixing of LIBOR “is quintessentially a
banking

operation”

and

that

it

must

“be

[a]

financial

operation[] by any view of the common sense of that term.”

Tr.

of Oral Arg. at 13:2–3, 16:18–19.
Historically, cases have focused more on the “transactions”
See Steven

prong of the Edge Act than on the “operations” one.
M.

Davidoff,

Jurisdiction

Section
for

632:

National

An

Banks,

Expanded
123

Basis

Banking

of

L.J.

Federal
687,

695

(2006) (discussing “the absence of any judicial discussion or
recognition of the potential applicability of the second prong
of Section 632” and later describing this absence as a “judicial
attention deficit”).

As a result, the “operations” prong has

remained largely undefined.

See Sealink, 2012 WL 4794450, at *5

(“[T]he case law offers little guidance as to the scope of the
‘other

international

or

foreign

-19-

financial

operations’

prong,

other

than

to

observe

that

it

means

something

other

than

banking.”).
One approach has been to treat the operations prong as a
broad, catch-all provision intended to cover conduct beyond mere
banking transactions.

See Stamm v. Barclays Bank of N.Y., No.

96 Civ. 5158(SAS), 1996 WL 614087, at *2 (S.D.N.Y. Oct. 24,
1996) (describing “financial operations” as a “general statutory
category”); In re Lloyd’s, 928 F. Supp. at 341 (finding that
“[e]ven if the transactions in question here do not constitute
banking proper . . . they surely fall within the ambit of the
‘financial operations’ contemplated by the statute”).

A second

approach, favored by the plaintiffs, is to apply the Black’s Law
Dictionary’s relatively narrow definition of the verb “finance”
-- “to raise or provide funds” -- to the Edge Act operations
prong.

Black’s

Law

Dictionary

706

(9th

ed.

2009).

approach also has some support in the case law.

This

See, e.g.,

Landesbank Baden-Wurttemberg v. Capital One Fin. Corp., Nos. 12
Civ. 5907, 5909, 5911(MGC), 2013 WL 3743161, at *2–3 (S.D.N.Y.
Jul. 17, 2013); Lemgruber, 382 F. Supp. 2d at 215 n.13; Stamm v.
Barclays Bank of N.Y., 960 F. Supp. 724, 728 (S.D.N.Y. 1997).
Plaintiffs claim that limiting the “financial operations” prong
to acts of fundraising in some form better captures the usual
meaning of the term.

See Salix Reply at 1; Schwab’s Nov. 15,
-20-

2013 Letter in Further Supp. of Mot. to Remand (“Schwab Reply
Letter”) at 2.
However, we find the argument advanced by the plaintiffs to
be untenable.
the

phrase

The starting point must be the plain meaning of

“financial

operations.”

See

Racepoint,

2006

WL

3044416, at *3 (“The phrase ‘financial operations’ in Section
632 is read according to its usual meaning.”); see also Perrin
v. United States, 444 U.S. 37, 42 (1979) (“[U]nless otherwise
defined, words [in a statute] will be interpreted as taking
their ordinary, contemporary, common meaning.”).

In deriving

that meaning, the Court respectfully disagrees with those cases
which adopt the plaintiffs’ proposed definition of “finance.”
We believe that it would be more logically sound to use the
definition

of

the

noun

“finance,”

rather

than

the

verb

“finance,” to understand the adjective “financial” as used to
modify the word “operations” in the language of the Edge Act.
The noun “finance” is defined as “[t]hat aspect of business
concerned with the management of money, credit, banking, and
investments.”

Black’s Law Dictionary 706 (9th ed. 2009).

This

more expansive definition more accurately captures the way that
the word “financial” is used in common parlance, and deriving

-21-

the adjective “financial” from the noun “finance,” as opposed to
the verb, better comports with linguistic conventions.8 
Using this definition of the term “financial” makes clear
that

the

fixing

of

LIBOR

qualifies

as

an

“international

foreign financial operation” under the Edge Act.

or

As a threshold

matter, this Court has already found that the conduct of the
BBA,

including

enterprise.”

the

setting

of

LIBOR,

“is

plainly

In re LIBOR, 935 F. Supp. 2d at 733.

a

foreign

Next, based

on the definition above, the defendants’ submissions of LIBOR
figures are certainly “concerned with the management of money,
credit,

banking,

and

investments,”

as

these

submissions

collectively set the benchmark that “determin[es] interest rates
for trillions of dollars in financial instruments” worldwide.
Schwab Compl. ¶ 5; see also Salix Am. Compl. ¶ 1; Maragos Compl.
¶ 2.

It would be wholly illogical for this Court to conclude

that the action of setting the London InterBank Offered Rate
through

submissions

“concerned

with

.

to
.

.

British

Bankers’

banking.”

And

Association,
finally,

each

is

not

bank’s

8
The suffix “-al” or “-ial” is generally appended to a noun, not a verb, to
convert the word into an adjective.
For example, “autumn” becomes
“autumnal,” “recreation” becomes “recreational,” and “manager” becomes
“managerial.”
By contrast, adding the suffix “-al” or “-ial” to a verb
typically transforms the word into a noun, not an adjective.
For example,
“arrive” becomes “arrival” and “rehearse” becomes “rehearsal.”
See also
Merriam-Webster’s Collegiate Dictionary 26, 573 (10th ed. 1998) (defining “al” and “-ial” as adjective suffixes meaning “of, relating to, or
characterized by,” which implies that the root word must be a noun, not a
verb).

-22-

regular submissions of their U.S. Dollar LIBOR fix to the panel,
done every day at the same time, is plainly an “operation” under
a common-sense understanding of that word.
In sum, the conduct out of which these cases arise -- the
submission of rates to the U.S. Dollar LIBOR panel -- is an
“international or foreign financial operation” under the Edge
Act.

Thus, this Court has jurisdiction, and we therefore deny

the plaintiffs’ motions for remand.9
II.

The Foreign Sovereign Immunities Act
Because we find that jurisdiction in these cases can be

premised

on

the

Edge

Act,

we

arguments regarding the FSIA.

need

not

address

the

parties’

That said, the Court notes that

the FSIA could potentially provide an independent avenue for
federal jurisdiction in each of these cases.
A. Salix and Maragos
First, in both Salix and Maragos, the defendants removed
the cases to federal court under the FSIA on the grounds that
there was a party to the case that was majority owned by a
foreign sovereign.

See Salix Notice of Removal ¶¶ 24–30 (basing

federal jurisdiction on the inclusion of RBS Group, which is

9
As discussed above, the Edge Act confers federal jurisdiction if the case at
bar arises out of either “international or foreign financial operations” or
“transactions involving international or foreign banking.” Therefore, we do
not address in this Memorandum and Order whether the fixing of LIBOR would
also constitute a “transaction” under the Edge Act.

-23-

approximately 80% owned by the United Kingdom, as a defendant);
Maragos Notice of Removal ¶¶ 23–27 (basing federal jurisdiction
on the inclusion of Portigon, which is approximately 69% owned
by the German state of North Rhine-Westphalia, as a defendant).
The plaintiffs do not dispute the foreign ownership of RBS
Group and Portigon.
the

majority

However, both Salix and Maragos eliminated

foreign-owned

entities

from

their

respective

complaints: Salix filed an amended complaint removing RBS Group
as a defendant, and Maragos voluntarily discontinued the action
against Portigon pursuant to Fed. R. Civ. P. 41(a)(1)(A)(i).10
Both

plaintiffs

claim

that

dismissing

these

defendants

eliminates the grounds for removal under the FSIA.

also

Salix Mem.

at 19–20; Maragos Mem. at 10–11.
However, the general rule is that a defendant’s right to
remove a case to federal court is fixed at the time of removal.
See Rockwell Int’l Corp. v. United States, 549 U.S. 457, 474 n.6
(2007) (noting that “an amendment eliminating the original basis
for

federal

jurisdiction

generally

does

not

defeat

jurisdiction”); Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939)
(“The second amended complaint should not have been considered

10
Although Salix eliminated RBS via an amended complaint and Maragos employed
a dismissal pursuant to Rule 41(a) to remove Portigon, we believe that this
is a distinction without a difference.
See Chambers v. Time Warner, Inc.,
No. 00 Civ. 2839(JSR), 2003 WL 1107790, at *2 (S.D.N.Y. Mar. 12, 2003) (“[A]
Rule 15(a) amendment eliminating a claim is the same as a Rule 41(a)
dismissal of the claim.”).

-24-

in determining the right to remove, which . . . was to be
determined according to the plaintiffs’ pleading at the time of
the petition for removal.”); Vera v. Saks & Co., 335 F.3d 109,
116 n.2 (2d Cir. 2003) (“[W]e generally evaluate a defendant's
right to remove a case to federal court at the time the removal
notice is filed.”).

Therefore, the defendants have a cogent

argument that they were entitled to remove these cases under the
FSIA because majority foreign-owned defendants existed in the
operative complaints at the time of removal.
Practically, however, removal based on the FSIA in these
cases would have minimal impact on the course of the respective
litigations.
is

nothing

As defendants conceded during oral argument, there
to

prevent

Salix

and

Maragos

from

voluntarily

dismissing their federal cases without prejudice and then simply
re-filing them in state court without suing any of the majority
foreign-owned defendants.
Fed. R. Civ. P. 41(a).

Tr. of Oral Arg. at 19:16–20:4; see

Because we have found jurisdiction under

the Edge Act, we decline to grapple with the tensions between
the technical rules of removal and the practical implications of
adhering to those rules when they are likely to unnecessarily
expend

judicial

resources.

We

only

note

that

precedent

indicates that the defendants’ arguments in Salix and Maragos
for federal jurisdiction under the FSIA have merit.
-25-

B. Schwab
As in Salix and Maragos, the defendants in Schwab sought
removal on the grounds that majority foreign-owned defendants
were named as defendants in the complaint.

Schwab Notice of

Removal ¶¶ 21–29 (based on the inclusion of both RBS Group and
Unlike the Salix and Maragos plaintiffs, the Schwab

Portigon).

plaintiffs did not eliminate RBS Group and Portigon from their
pleadings.

Rather, they argued that the FSIA does not apply

because their case arises under the Securities Act of 1933 (“the
Securities Act” or “the Act”).

Schwab Ltr. at 1–2.

The Act

provides, in relevant part, that “no case arising under [the
Act] and  brought in any State court of competent jurisdiction
shall be removed to any court of the United States.”

15 U.S.C.

§ 77v(a).
We believe that this argument is fatally flawed on two
grounds.

First, the plaintiffs’ argument requires the Court to

conclude

that

the

Securities

jurisdictional purposes.
FSIA]

expresses

an

Act

must

trump

the

FSIA

We reject that proposition.

intention

to

give

sovereign

defendants an absolute right to a federal forum . . . .”

for

“[The
foreign
Noonan

v. Possfund Invs., Ltd., No. 89 Civ. 2903 (WK), 1994 WL 515440,
at

*2

(S.D.N.Y.

Sept.

3,

1993)

(emphasis

added)

(quoting

Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1409 (9th Cir.
-26-

1989)).

Given “Congress’s intent to give foreign states a clear

right of removal,” we believe that such a right under the FSIA
“is paramount” and would likely trump the contradictory language
of the Securities Act.

19A Charles Alan Wright et al., Federal

Practice and Procedure App. G, Revision Pt. III, Rptr. Note F
(2013).
Second, the Schwab plaintiffs’ Securities Act claims are
plainly untimely pursuant to the Act’s three-year statute of
repose.

15 U.S.C. § 77m.

The plaintiffs make no allegation

that their claims are based on a public securities offering made
after April 29, 2010.11
of

repose

is

not

In the Second Circuit, the Act’s statute

subject

to

tolling

under

American

Construction Co. v. Utah, 414 U.S. 538 (1974).

Pipe

&

See Police &

Fire Ret. Sys. of Detroit v. IndyMAC MBS, Inc., 721 F.3d 95, 109
(2d Cir. 2013); Caldwell v. Berlind, No. 13-156-cv, 2013 WL
5779021, at *2 (S.D.N.Y. Oct. 28, 2013).12
plaintiffs’

Securities

Act

claims

are

Thus, the Schwab

time-barred

and

cannot

serve as the basis to defeat federal jurisdiction.
Therefore, the Schwab action was properly removed to this
Court under both the Edge Act and the FSIA.

11
Schwab filed their operative complaint on April 29, 2013.
12
The Schwab plaintiffs concede that the Act’s statute of repose renders
their claim untimely unless the Second Circuit’s decision in IndyMAC is
reversed by the Supreme Court. Schwab Reply Letter at 2; Tr. of Oral Arg. at
22:10–13. 

-27-

CONCLUSION

For

the

foregoing

reasons,

pl

iffs'

motions

remand are denied.

SO ORDERED.

Dated:

New York, New York
December 27, 2013

NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

-28

to