Alaska Electrical Pension Fund v. Bank Of America Corporation et al
MEMORANDUM OPINION AND ORDER re: 333 JOINT MOTION to Compel the production of related transaction information filed by Morgan Stanley & Co. LLC, Nomura Securities International, Inc., ICAP Capital Markets, LLC, Wells Farg o Bank, N.A., BNP Paribas SA, HSBC Bank USA, N.A., UBS AG, 358 JOINT LETTER MOTION for Leave to File Sur-Reply to the Non-Settling Defendants' Reply Memorandum of Law in Support of Their Joint Motion to Compel (Dkt. 356) add ressed to Judge Jesse M. Furman from Daniel L. Brockett, David W. Mitchell filed by The County of Montgomery, The County of Washington, The County of Westmoreland, The City of New Britain, Alaska Electrical Pension Fund, The County of Bea ver, Magnolia Regional Health Center, Genesee County Employees' Retirement System. For the foregoing reasons, Defendants' motion to compel is DENIED. The Clerk of Court is directed to terminate Docket Nos. 333 and 358. (As further set forth in this Memorandum Opinion and Order.) (Signed by Judge Jesse M. Furman on 1/26/2017) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ALASKA ELECTRICAL PENSION FUND, et al.,
BANK OF AMERICA CORPORATION, et al.,
JESSE M. FURMAN, United States District Judge:
In this putative class action, familiarity with which is assumed, several institutional
investors allege that Defendants, some of the world’s largest banks, illegally manipulated the
U.S. Dollar ISDAfix (“ISDAfix”), a benchmark interest rate incorporated into a broad range of
financial derivatives. See generally Alaska Elec. Pension Fund v. Bank of Am. Corp., 175 F.
Supp. 3d 44 (S.D.N.Y. 2016). Defendants now move to compel production of “documents and
information regarding Plaintiffs’ transactions that are related to the swaps and swaptions”
identified in the Complaint. (Docket No. 334 (“Defs.’ Mem.”), at 1; Docket No. 333). More
specifically, Defendants seek production of any and all transactional materials that “(1) Plaintiffs
claim are ‘ISDAFIX-related,’ (2) involved what Plaintiffs claim are interest rate components
affected by alleged manipulation, or (3) were entered into contemporaneously or in conjunction
with Plaintiffs’ alleged ISDAFIX-related transactions.” (Docket No. 356 (“Defs.’ Reply”), at 1).
Upon review of the parties’ submissions (Docket Nos. 334, 350, 356, and 358), Defendants’
motion is DENIED, substantially for the reasons set forth in Plaintiff’s opposition papers 1.
On January 20, 2017, Plaintiffs filed a letter motion seeking leave to file a sur-reply.
First, as Defendants themselves concede (Defs.’ Reply 5), the request for transactional
materials that Plaintiffs claim are “ISDAFIX-related” is moot, as Plaintiffs have agreed to
produce all documents and materials relating to transactions of the types they allege were
affected by Defendants’ alleged misconduct. (See Docket No. 350 (“Pls.’ Opp’n”), at 1-2, 4-5).
Second, the Court agrees with Plaintiffs that documents relating to transactions involving
product types allegedly used by Defendants to manipulate ISDAfix or impacted by Defendants’
alleged manipulation are irrelevant and that Defendants request for those documents is
overbroad. (See Defs.’ Reply 5; Docket No. 358 (“Pls.’ Sur-Reply”), at 2). Defendants hinge
their potentially expansive request on a few paragraphs in Plaintiffs’ Complaint alleging that —
in addition to plain vanilla swaps — Defendants occasionally used other interest-rate derivatives,
such as Eurodollar futures and Treasuries, to manipulate the ISDAfix rate. (See Defs.’ Reply 6;
Docket No. 164 (“Amended Compl.”) ¶¶ 176, 198). But Plaintiffs do not seek damages with
respect to any transactions they engaged in involving those product types. (See Pls.’ Sur-Reply
2). Given that, Defendants fail to explain how Plaintiffs’ transactions involving those products,
if any, could be relevant to any claims or defenses in this case.
Finally, Defendants make a sweeping request for discovery regarding any and all
transactions that were “entered into contemporaneously or in conjunction with Plaintiffs’ alleged
ISDAFIX-related transactions,” even if not contractually linked to ISDAfix. (Defs.’ Reply 1).
The Court agrees with Plaintiffs that, at bottom, Defendants’ arguments in support of that request
turn on the concept of “netting” — that is, the notion that a plaintiff’s losses due to a defendant’s
misconduct should be offset by any gains due to that same misconduct. (See, e.g., Defs.’ Mem.
(Docket No. 358). That motion is GRANTED.
1-2 (seeking any transactional data that might have “mitigated Plaintiffs’ alleged injury or even
caused Plaintiffs to benefit from the alleged manipulations”); id. at 6 (arguing that “it is
necessary to account for contemporaneous factors that may have affected Plaintiffs’ financial
position that are unrelated to the alleged conduct”); Defs.’ Reply 2 (contending that the materials
are relevant to “whether Plaintiffs suffered any injury”); id. at 7 (alleging that all of Plaintiffs’
hedging activity is relevant as it reveals “whether Plaintiffs were impacted at all by the alleged
conspiracy”)). At most, however, netting calls for offsetting transactions of the same type. See,
e.g., Minpeco, S.A. v. Conticommodity Servs., Inc., 676 F. Supp. 486, 488-90 (S.D.N.Y. 1987)
(applying the netting defense by offsetting the plaintiff’s “claimed damages on its silver futures
positions” by “the measure of the increase in value [of its] physical silver holdings” (emphasis
added)); In re LIBOR-Based Fin. Instruments Antitrust Litig., No. 11-MD-2262 (NRB), 2015
WL 6243526, at *30 n.21 (S.D.N.Y. Oct. 20, 2015) (noting that if LIBOR-based swaps “hedged
LIBOR-based bonds, then it is not clear that LIBOR manipulation could have caused any
damages” (emphasis added)).
In light of that, Defendants fail to establish a need for the third category of materials they
seek. Put simply, whether or not netting is appropriate in this case at all (a dispute the parties
agree the Court can and should defer to another day), Plaintiffs have agreed to produce “every
single document that could possibly be relevant” to netting, including “all documents related to
all product types that moved in response to Defendants’ [alleged] manipulation, including every
‘vanilla’ swap, every cash- or physically-settled swaption, and every other product that is
contractually-linked to ISDAfix rates.” (Pls.’ Sur-Reply 2). Other transactions — even if
entered into contemporaneously or in conjunction with ISDAfix-related transactions — are not
relevant to even the most capacious understanding of the netting doctrine. Indeed, taken to its
logical conclusion, Defendants’ argument would suggest that they should be entitled to full
access to all of Plaintiffs’ portfolios and every transaction Plaintiffs entered into during the
relevant time period, whether ISDAfix-related or not. That would be absurd on its face.
Limiting the request to transactions that are contemporaneous or in conjunction with Plaintiffs’
ISDAfix-related transactions may be somewhat less absurd, but it is not enough to pass either the
relevance or proportionality tests embodied in Rule 26 of the Federal Rules of Civil Procedure.
See Alaska Elec. Pension Fund v. Bank of Am. Corp., No. 14-CV-7126 (JMF), 2016 WL
6779901, at *2 (S.D.N.Y. Nov. 16, 2016).
For the foregoing reasons, Defendants’ motion to compel is DENIED. The Clerk of
Court is directed to terminate Docket Nos. 333 and 358.
Dated: January 26, 2017
New York, New York
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