The Federal Home Loan Mortgage Corporation v. Bank of America Corporation et al

Filing 185

MEMORANDUM AND ORDER denying (1178) Motion for Reargument ; denying (1178) Motion for Reconsideration in case 1:11-md-02262-NRB; denying (168) Motion for Reargument ; denying (168) Motion for Reconsideration in case 1:13-cv-03952-NRB.For the reas ons stated above, Freddie Mac's motion for reconsideration or reargument is denied, except for our finding that this Court has personal jurisdiction over defendants Bank of America, N.A., Barclays Bank, plc, Citibank, N.A., and JPMorgan Chase Ba nk, N.A. for fraud claims related to the sale of mortgage loans. This Memorandum and Order terminates Docket no. 1178. (As further set forth in this Order) (Signed by Judge Naomi Reice Buchwald on 3/31/2016) Filed In Associated Cases: 1:11-md-02262-NRB, 1:13-cv-03952-NRB (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
In re:
MEMORANDUM AND
ORDER

LIBOR-Based Financial Instruments
Antitrust Litigation.

11 MD 2262 (NRB)

This Document Applies to:
THE FEDERAL HOME LOAN MORTGAGE
CORPORATION,
Plaintiff,
- against –

13 Civ. 3952 (NRB)

BANK OF AMERICA CORPORATION; BANK OF
AMERICA, N.A.; BARCLAYS BANK PLC; BRITISH
BANKERS’ ASSOCIATION; BBA ENTERPRISES,
LTD; BBA LIBOR, LTD; CITIGROUP, INC.;
CITIBANK, N.A.; COÖPERATIVE CENTRALE
RAIFFEISEN BOERENLEENBANK, B.A.; CREDIT
SUISSE GROUP AG; CREDIT SUISSE
INTERNATIONAL; DEUTSCHE BANK AG; HSBC
HOLDINGS PLC; HSBC BANK USA, N.A.; J.P.
MORGAN CHASE & CO.; J.P. MORGAN CHASE
BANK, N.A.; LLOYDS BANKING GROUP, PLC;
LLOYDS TSB BANK PLC; HBOS PLC; SOCIÉTÉ
GÉNÉRALE; THE NORINCHUKIN BANK; ROYAL
BANK OF CANADA; THE ROYAL BANK OF
SCOTLAND GROUP PLC; THE ROYAL BANK OF
SCOTLAND PLC; THE BANK OF TOKYOMITSUBISHI UFJ, LTD; UBS AG; WESTLB AG;
and PORTIGON AG,
Defendants.
----------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
In LIBOR IV, this Court addressed the motions to dismiss
the

complaints

of

plaintiffs

who

classes or become class members.
1

do

not

seek

to

represent

That opinion analyzed, inter

alia,

defendants’

arguments

regarding

the

timeliness

of

plaintiffs’ claims, which this Court had previously addressed at
length, and regarding personal jurisdiction, which we addressed
for the first time.
(“Freddie

Mac”)

The Federal Home Loan Mortgage Corporation

seeks

decision in LIBOR IV.
overlooked

certain

reconsideration

of

two

aspects

of

our

First, Freddie Mac argues that this Court
allegations,

and

incorrectly

imputed

to

Freddie Mac other allegations, that led this Court to improperly
hold that its fraud claims arising before March 14, 2011 were
time-barred.

Second,

according

to

Freddie

Mac,

this

Court

overlooked facts regarding defendants’ course of dealing with
Freddie

Mac

in

mortgage-backed

securities

and

mortgage

loans

that support the exercise of personal jurisdiction over those
defendants.

For the reasons stated below, Freddie Mac’s motion

is denied, except for our finding that this Court has personal
jurisdiction

over

defendants

Bank

of

America,

N.A.,

Barclays

Bank, plc, Citibank, N.A., and JPMorgan Chase Bank, N.A. for
fraud claims related to the sale of mortgage loans.
I.

Legal Standard
“Reconsideration is an extraordinary remedy to be employed

sparingly

in

the

interests

scarce judicial resources.”
Litig.,

399

F.

Supp.

2d

quotation marks omitted).

of

finality

and

conservation

of

In re Initial Pub. Offering Sec.

298,

300

(S.D.N.Y.

2005)

(internal

The moving party must identify “an
2

intervening change of controlling law, the availability of new
evidence,

or

the

need

manifest injustice.”

to

correct

a

clear

error

or

prevent

Kolel Beth Yechiel Mechil of Tartikov,

Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 104 (2d Cir. 2013)
(internal

quotation

marks

omitted).

“A

motion

seeking

such

relief is addressed to the sound discretion of the district
court . . . .”

Aczel v. Labonia, 584 F.3d 52, 61 (2d Cir. 2009)

(internal quotation marks omitted).
II.

Statute of Limitations
This Court first addressed statute of limitations arguments

in LIBOR I.
that

935 F. Supp. 2d 666, 697-713 (S.D.N.Y. 2013).

decision,

referenced

in

we

held

that

those

numerous

articles

articles

placed

the

and

a

In

report

Exchange-Based

Plaintiffs on inquiry notice of their injury on May 29, 2008,
and that claims arising between August 2007 and that date were
therefore time-barred.

Id. at 695, 712.

In LIBOR III, we

extended that holding, and found that the Commodities Exchange
Act claims arising after the Exchange-Based Plaintiffs were on
inquiry notice, but more than two years before the filing date,
were similarly untimely.
2014).
the

In LIBOR IV, we analyzed the statute of limitations and

“discovery

applied

27 F. Supp. 3d 447, 471-77 (S.D.N.Y.

them

rules”
to

the

of

eleven

individual

different

jurisdictions

plaintiffs’

claims.

and
We

characterized the rule postponing accrual of fraud claims in
3

Virginia,

where

Freddie

Mac

filed

suit,

as

a

“weak

inquiry

notice” rule: the statute of limitations begins to run when “the
plaintiff

discovers,

or

when

a

reasonably

diligent

plaintiff

would discover, facts sufficient to state a claim.”

LIBOR IV,

No. 11 MD 2262, 2015 WL 6243526, at *126, 2015 U.S. Dist. LEXIS
147561, at *418 (S.D.N.Y. Oct. 20, 2015).
Applying

this

rule

to

Freddie

Mac,

we

held

that

fraud

claims arising before March 14, 2011 — two years before it filed
its complaint — were untimely.
2015

U.S.

Dist.

LEXIS

Id., 2015 WL 6243526, at *170,

147561,

at

*523.

We

came

to

this

conclusion because (1) the statute of limitations for fraud in
Virginia

runs

for

two

years;

(2)

we

held

that

owners

of

instruments other than Eurodollar futures contracts might not
have closely followed LIBOR-related news, and therefore might
not have discovered the articles relied upon in our analysis in
LIBOR I; (3) however, Freddie Mac’s complaint did show that it
was

aware

of

the

British

Bankers’

Association’s

(the

“BBA”)

responses to allegations of LIBOR manipulation that appeared in
the press between April and August 5, 2008, which would have
caused a reasonable investor to ask what those statements were
responding
criticism

to,
of

and
the

a

brief

LIBOR

search

submission

would

have

process.

alerted
Id.,

it

to

2015

WL

6243526, at *14, *134, *135, *170, 2015 U.S. Dist. LEXIS 147561,
at *121, **432-36, *523.

Therefore, we determined that Freddie
4

Mac was on inquiry notice by August 5, 2008.
6243526,

at

*170,

2015

U.S.

Dist.

LEXIS

Id., 2015 WL

147561,

at

*523.

Because “it would have taken one year, at the very most, for a
sophisticated investor to discover that he had been injured by
the panel banks’ LIBOR suppression,” we held that Freddie Mac’s
claims began to run on August 5, 2009, more than two years
before it filed its complaint.1

Id., 2015 WL 6243526, at *135,

*170, 2015 U.S. Dist. LEXIS 147561, at **434-35, *523.
Freddie Mac argues that this Court improperly applied the
analysis

of

the

Exchange-Based

Plaintiffs’

claims

to

Freddie

Mac’s fraud claims by overlooking facts alleged by Freddie Mac
that

the

complaint,

Exchange-Based
and

by

Plaintiffs

imputing

to

did

not

Freddie

include

Mac

facts

in

their

that

Exchange-Based Plaintiffs, but not Freddie Mac, alleged.

the

Thus,

according to Freddie Mac, its complaint properly alleges that it
was not on inquiry notice of its injury until Barclays PLC,
Barclays

Bank

PLC,

and

Barclays

Capital

Inc.

settled

with

various regulators in June of 2012, fewer than two years before
it filed its complaint.

None of Freddie Mac’s arguments in the

1 While Freddie Mac argues that it should only be held to the diligence
expected of a reasonable person and not that of a sophisticated investor,
Virginia law looks to the diligence exercised by “a reasonable and prudent
man under the particular circumstances; not measured by any absolute
standard, but depending on the relative facts of the special case.”
STB
Mktg. Corp. v. Zolfaghari, 393 S.E.2d 394, 397 (Va. 1990) (internal quotation
marks omitted).
Here, Freddie Mac engaged regularly in LIBOR-linked
transactions and, as its complaint acknowledges, followed, at least to some
extent, LIBOR-related news.
We think it is appropriate to expect it to
undertake the modest investigation outlined in LIBOR IV upon learning of
possible LIBOR manipulation.

5

instant

motion

Virginia’s

convinces

statute

of

us

that

limitations

we

and

erred

in

accompanying

analyzing
discovery

rule.
Freddie Mac contends that “objective evidence” showed that
reasonable investors did not suspect that defendants manipulated
LIBOR.

First, Freddie Mac argues that the precipitous fall in

Barclays’ stock price after it entered into settlements with
regulators shows that reasonable investors did not suspect LIBOR
manipulation.

This argument mixes apples and oranges: that the

disclosure caused the stock price decline does not dictate when
Freddie Mac was on inquiry notice of possible LIBOR suppression.
Second, the other piece of “objective evidence” that Freddie Mac
points

to

—

former

Chairman

of

the

Federal

Reserve

Alan

Greenspan’s statement that he did not think that bankers would
have misrepresented LIBOR — is no such thing.

That one might

have, at some point, reasonably thought that banks would not
manipulate LIBOR does not suggest what one might believe in the
face of widespread skepticism of the LIBOR submission process.
Next, Freddie Mac argues that this Court overlooked several
statements by the BBA, defendants, and third parties that would
have

led

a

reasonable

person

to

believe

their

plausible

explanations for LIBOR’s behavior during the financial crisis.
But LIBOR IV squarely considered the “responses [to the LIBORrelated articles published in Spring 2008] that the BBA and
6

banks published through August 5, 2008,” and found that, upon
reading

those

statements,

“a

reasonable

investor

would

have

asked what the BBA was responding to, and would have almost
immediately discovered the barrage of news articles criticizing
LIBOR.”

2015 WL 6243526, at *134, 2015 U.S. Dist. LEXIS 147561,

at *433.

Therefore, we held that plaintiffs who relied on these

responses were on inquiry notice of their injury by August 5,
2008, and that a diligent investigation would have allowed such
plaintiffs, including Freddie Mac, to state a claim by August 5,
2009.
LEXIS

Id., 2015 WL 6243526, **134-35, *170, 2015 U.S. Dist.
147561,

at

**433-35,

*523.

Freddie

Mac’s

additional

allegations that the BBA had an incentive to root out misconduct
by members of the LIBOR panel does not alter our conclusion.
Given the widespread reporting on potential irregularities in
LIBOR

submissions

Freddie

Mac’s

—

reporting

position

that
have

would

a

reasonable

found

—

any

person

in

perceived

incentives to maintain the integrity of LIBOR would not have led
a reasonable person to ignore the multitude of criticisms of the
LIBOR submission process.

Further, statements by regulators in

Spring 2008 — months before Freddie Mac was on inquiry notice of
its injury — that “it is difficult to find convincing evidence
of

actual

misreporting,”

Samuel

Cheun

&

Matt

Raskin,

Recent

Concerns Regarding LIBOR’s Credibility, MarketSource (May 20,
2008), available at

http://www.newyorkfed.org/newsevents/news/7

markets/2012/libor/MarketSource_Report_May202008.pdf
added), do not change the analysis:

2

(emphasis

the relevant questions is

when could Freddie Mac have stated, not proven, a claim.3
Relatedly, the argument that Freddie Mac could not have
stated a claim until it obtained direct evidence of fraud must
fail.

Owens v. DRS Automobile Fantomworks, Inc., the sole case

Freddie Mac cites for this proposition, does not convince us
otherwise.
Virginia

764

S.E.2d

Supreme

Court

256

(Va.

reviewed

2014).
the

In

that

sufficiency

case,

of

necessary to raise a disputed issue of fact at trial.
260.

the

evidence
Id. at

The Court held that, because “the plaintiff is bound by so

much of the testimony of the defendant as is clear, reasonable
and uncontradicted” when the plaintiff calls the defendant as a
witness, the trial court properly struck the plaintiff’s weak
circumstantial

evidence

used

to

contradict

the

defendant’s

testimony.

Id. at 259-60 (emphasis and internal quotation marks

omitted).

Such a holding clearly does not even implicate the

2

Nor does a lack of public regulator action from 2008 until UBS disclosed in
its Form 20-F that the Commodity Futures Trading Commission (the “CFTC”),
Securities and Exchange Commission, and the Department of Justice had issued
it subpoenas dissipate inquiry notice, a claim implicitly rejected in LIBOR
I.
See 935 F. Supp. 2d 666, 704 (S.D.N.Y. 2013) (finding Exchange-Based
Plaintiffs on inquiry notice prior to announcement of investigations of UBS).
A reasonable investor would not conclude from silence that no investigation
of any kind was ongoing. Further, the CFTC began its investigation in 2008,
a fact that strongly supports our holdings that plaintiffs were placed on
inquiry notice that year.
3 Freddie Mac also argues that we must accept as true and credible the selfserving statement of the former head of the United Kingdom’s Financial
Services Authority that regulators could not have identified the allegedly
manipulative conduct of the banks during the financial crisis.
However, we
need not accept as true conclusory allegations. Ashcroft v. Iqbal, 556 U.S.
662, 681 (2009).

8

allegations sufficient to successfully state a fraud claim in a
complaint.
Freddie

Mac

also

contends

that

in

determining

that

a

plaintiff could have properly stated a claim for fraud in 2009,
this Court relied on facts that Freddie Mac did not include in
its complaint.
investigation

In LIBOR IV, we determined a reasonably diligent
would

take

at

most

a

year

to

uncover

enough

information to state a claim because “[a]ll that a prospective
plaintiff
submissions
banks'

needed

to

(which

reported

do

were

credit

was

to

publicly
spreads

to

download

the

available)
public

banks'

and

data

LIBOR

compare

the

regarding

the

banks' credit, or to compare published LIBOR to other indices”
in order to plead injury, and that by alleging the reputational
motive “thoroughly explained” in the LIBOR-related articles, a
prospective plaintiff would have been able to plead scienter.
2015 WL 6243526, *135, 2015 U.S. Dist. LEXIS 147561, at **43536.

According

to

Freddie

Mac,

however,

it

was

improperly

charged with knowledge of LIBOR’s divergence from other indices
and the banks’ reputational motive, because its complaint did
not plead these facts, and therefore this Court could not rely
on their truth.

This argument misunderstands LIBOR IV.

Freddie

Mac is charged with knowledge of the articles that it would have
quickly uncovered had it begun an investigation after learning
of

the

statements

of

the

BBA,
9

defendants,

and

third-party

regulators.

LIBOR

IV

did

not

pass

on

the

truth

of

these

articles and the statements contained within them, but found
that

they

provided

a

good-faith

basis

for

plaintiff to bring a viable fraud claim.

a

prospective

Whether Freddie Mac

pleaded such facts is irrelevant to the analysis.
Finally,

Freddie

Mac

contends

that

a

reasonable

investigation would not have uncovered defendants’ alleged fraud
until Barclays entered into its settlements.

In support of this

proposition, Freddie Mac points to the statement of the former
head of the CFTC, Gary Gensler, that “[i]t took 20 months before
[they]

had

actionable

evidence”

of

LIBOR

manipulation,

and

Lloyds and HBOS’ representations that they did not find evidence
of manipulation until 2010.

However, whatever evidence the CFTC

thought it needed to have does not impact when a typical civil
plaintiff could have stated a claim in order to survive a motion
to dismiss.

Further, the document Freddie Mac cites for the

latter proposition shows that the Financial Conduct Authority
only

asked

Lloyds

Lloyds

uncovered

to
the

investigate
alleged

misconduct

manipulation

in
the

2010

—

that

same

year

a

regulator asked it to investigate hardly supports the argument
that

a

reasonable

investigation

would

not

sufficient facts to properly plead a fraud claim.

10

have

uncovered

III. Personal Jurisdiction
In LIBOR IV, we upheld personal jurisdiction in plaintiffs’
home forums for contract, unjust enrichment, and fraud in the
inducement claims relating to over-the-counter swaps, because
the ISDA Agreements that formed the basis of those transactions
“were

individually

negotiated

by

plaintiffs

with

the

counterparty defendants,” but found that “there is no basis to
infer that issuers of broadly-traded securities such as bonds
and

[mortgage-backed

those

securities

securities

into

(“MBS”)]

plaintiffs’

home

purposely
forums.”

directed
2015

WL

6243526, at *31, 2015 U.S. Dist. LEXIS 147561, at **168-69.
Further, we upheld on the merits claims related to MBS only
against the issuer, and not against other bond counterparties
such as the underwriters, brokers, and dealers.

Id., 2015 WL

6243526, at *75, 2015 U.S. Dist. LEXIS 147561, at *291.
Mac

asserts

that

this

Court

overlooked

allegations

Freddie
that,

it

argues, make out a prima facie case of personal jurisdiction
against all defendants regarding its bond claims.

Specifically,

Freddie Mac argues that its unique status as a purchaser of
these products, and defendants’ knowledge of this status, served
as

the

basis

of

a

course

of

dealing

with

defendants

more

significant than its swap transactions with defendants.
However,

“mere

foreseeability

does

not

confer

personal

jurisdiction,” id., 2015 WL 6243526, at *20, 2015 U.S. Dist.
11

LEXIS 147561, at *137, and the impersonal sale of a large number
of

MBS

does

not

transform

the

analysis.

Nor

does

it

particularly distinguish Freddie Mac from other plaintiffs, who
also engaged in bond transactions in the billions of dollars.
See, e.g., Am. Compl., Ex. B, ECF No. 669 (showing Core Taxable
Money Market Fund’s bond transactions with defendants totaling
billions of dollars).

Further, Freddie Mac’s complaint provides

no

whatsoever

to

regarding

MBS

basis

defendants

exercise

personal

transactions:

not

jurisdiction
only

is

over

there

no

description as to what role any defendant played any sale, and
therefore no indication as to whether such claims can survive on
the merits, but there is no description of any MBS transactions
whatsoever, or even a suggestion of which defendants in fact
sold these products to Freddie Mac.

Without any facts tending

to show that defendants possess contacts with Virginia, Freddie
Mac has not stated a prima facie case of personal jurisdiction.
Pace Freddie Mac, a bare statement that “bank defendants” sold
it MBS, without any further elaboration, does not suffice.
However,

we

agree

with

Freddie

Mac

that

the

sale

of

mortgage loans by defendants Bank of America, N.A., Barclays
Bank,

plc,

Citibank,

N.A.,

and

JPMorgan

Chase

supports the exercise of personal jurisdiction.

Bank,

N.A.

Freddie Mac

alleges that these defendants regularly contacted Freddie Mac to
sell mortgage loans, and did in fact sell it millions of such
12

loans.

We think this conduct represents “a course of dealing

with [Freddie Mac] in [Virginia] over time,” LIBOR IV, 2015 WL
6243526, at *31, 2015 U.S. Dist. LEXIS 147561, at *168, and
notably, defendants do not seriously contend otherwise.
they make two principal arguments.

Rather,

First, defendants argue that

this Court should not consider this argument, as Freddie Mac did
not contend in the initial round of briefing that its unique
status entered into the jurisdictional analysis or that the sale
of mortgage loans supported specific personal jurisdiction over
defendants.
general

However, the Declaration of Freddie Mac’s associate

counsel

filed

contemporaneously

with

its

brief

specifically noted that these defendants contacted Freddie Mac
in order to sell it loans and Freddie Mac cited this particular
point in support of its argument regarding specific personal
jurisdiction.
analysis

Second, defendants argue that we should apply our

holding

that

the

entities

affiliated

with

Charles

Schwab Corp. could not bring fraud claims based on the payment
of an artificial price for adjustable-rate bonds to Freddie Mac.
In LIBOR IV, we held that because the price of a bond is the
present

discounted

value

of

future

payment

streams,

bond

purchases during any period of LIBOR suppression lowered the
price of the bonds and that fraud claims based on an inflated
purchase price failed.

2015 WL 6243526, at *70, 2015 U.S. Dist.

LEXIS 147561, at **277-78.

Here, however, Freddie Mac contends
13

that

it

received

suppression,
purchase

and

price

depressed
so

of

even

the

payments

if

it

mortgage

as

received

loans,

at

(describing

* 112,

2015

measure

of

U. S.

Dl s t .

damages

for

result
a

the

could still plausibly have harmed Fredd1e
6 2 4 3 52 6,

a

benefit

alleged

Mac.~

LEX IS

LIBOR
in

the

suppression

See id., 2015 WL

1 4 7 5 61,

fraud

of

in

the

at

* * 3 8 1- 8 2

lnducement

claims).

CONCLUSION
For

the

reasons

stated

above,

Freddie

reconsideration or reargument is denied,
that
of

this

Court

America,

has

N .A.,

JPMorgan Chase Bank,
of mortgage loans.

Mac's

jurisdiction over

Barclays

Bank,

for

for

except for our finding

personal

N .A.

motion

plc,

fraud claims

defendants

Citibank,

N .A.,

Bank
and

related to the sale

This Memorandum and Order terminates Docket

no. 117 8.
Dated:

New York, New York
March 31, 2016

~·
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

5 We do not pass on the question as to whether these claims otherwise survive
on the mer1ts, which the parties have ra1sed in connect1on w1th fraud claims
re:i.ating to ISDA contracts in their spreadsheet list1ng the d1spos1t1on of
claims on personal JUrisd1ct1on grounds.
See Kurtzberg & Leveridge Letter at
2, 68-7C, Jan. 21, 2016, ECF No. 1303.

14