Principal Funds, Inc. et al v. Bank Of America Corporation et al
Filing
63
MEMORANDUM AND ORDER: granting in part and denying in part (2546) Motion for Leave to File Document; granting in part and denying in part (2551) Motion for Leave to File Document; granting in part and denying in part (2552) Motion for Leave to File Document; granting in part and denying in part (2562) Motion to Amend/Correct; granting in part and denying in part (2563) Motion to Amend/Correct; granting in part and denying in part (2620) Motion for Judgment on the Pleadings; granting in part and denying in part (2622) Motion to Dismiss in case 1:11-md-02262-NRB; granting in part and denying in part (327) Motion for Leave to File Document in case 1:12-cv-05723-NRB; granting in part and denying in part (293) Motion to Amend/Correct in case 1: 13-cv-03952-NRB; denying (286) Motion to Dismiss in case 1:13-cv-07005-NRB; granting in part and denying in part (244) Motion to Amend/Correct in case 1:13-cv-07394-NRB; granting in part and denying in part (251) Motion to Amend/Correct in case 1:14- cv-01757-NRB; granting in part and denying in part (56) Motion to Dismiss in case 1:18-cv-01540-NRB; granting in part and denying in part (432) Motion to Amend/Correct in 11-cv-05450-NRB; granting in part and denying in part 52 Motion for Leave t o File Document in case 15cv9793. The motions for leave to amend brought by Freddie Mac, Principal, the FDIC, and the NCUA are granted in part and denied in part. Lender plaintiffs' motion for leave to amend is denied. Moving plaintiffs are orde red to file their amended complaints in accordance with our rulings in this opinion by April 16, 2019. Defendants' motion for partial dismissal of Schwab's and Doral's claims is granted in part and denied in part. As agreed upon by the FDIC and defendants, Doral's surviving claims will be incorporated into the amended complaint filed by the FDIC on behalf of the 38 other failed banks. The motion for partial judgment on OTC plaintiffs' pleadings brought by Bank of America , N.A. and JPMorgan Chase Bank, N.A. is granted in part and denied in part. This Memorandum and Order resolves the motions listed at docket entries 2544, 2546, 2551, 2552, 2562, 2563, 2620, and 2622. SO ORDERED. (Signed by Judge Naomi Reice Buchwald on 3/25/2019) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
In re:
LIBOR-Based Financial Instruments
Antitrust Litigation.
MEMORANDUM AND ORDER
11 MDL 2262 (NRB)
This Document Applies to:
CASES LISTED IN APPENDIX
----------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
LIBOR VIII
Table of Contents
I.
Introduction .............................................. 3
II. Background ................................................ 3
III. Plaintiffs’ Motions for Leave to Amend ................... 12
1. General Legal Standard for Leave to Amend............... 13
2. Amendments Related to Personal Jurisdiction............. 15
2.1. Counterparty Claims................................. 15
2.2. Indirect Counterparty Claims........................ 21
2.3. Non-Counterparty Claims and Conspiracy Jurisdiction. 26
2.4. “Overt Acts” in Furtherance of the Conspiracy....... 35
3. Other Amendments........................................ 43
3.1. Lender Plaintiffs’ Proposed Amendments.............. 43
3.2. NCUA’s Proposed Amendments.......................... 45
3.3. FFP Plaintiffs’ Proposed Amendments................. 45
IV. Defendants’ Motion to Dismiss Against Schwab and Doral ... 50
1. General Legal Standard for Motion to Dismiss............ 50
2. Motion to Dismiss Schwab’s Claims Based on Lack of
Personal Jurisdiction................................... 52
1
2.1. Nationwide General Jurisdiction Based on the Exchange
Act’s Nationwide Service of Process................. 55
2.2. Specific Jurisdiction over Defendants in Exchange Act
Claims.............................................. 59
2.3. Pendent Jurisdiction over State Law Claims.......... 64
3. Motion to Dismiss Schwab’s Claims Based for Failure to
State a Claim........................................... 67
3.1. Addition of New Defendants and Claims............... 67
3.2. Exchange Act § 10(b) Claims......................... 70
3.3. Exchange Act § 20(a) Claims......................... 73
3.4. Unjust Enrichment Claims............................ 76
3.5. Tortious Interference Claims........................ 79
4. Motion to Dismiss Doral’s Claims for Lack of Personal
Jurisdiction............................................ 82
5. Motion to Dismiss Doral’s Claims for Failure to State a
Claim................................................... 84
5.1. Fraud, Tortious Interference, and Negligent
Misrepresentation Claims............................ 84
5.2. Donnelly Act Claim.................................. 88
5.3. Sherman Act Claims.................................. 90
V. Defendants’ Motion for Judgment on the Pleadings........... 91
1. General Legal Standard for Judgment on Pleadings........ 93
2. Instruments Issued by Panel Bank Defendants’
Subsidiaries/Affiliates................................. 94
3. Instruments Issued by Panel Banks but Sold by Their
Related or Unrelated Subsidiaries/Affiliates............ 99
VI. Conclusion............................................... 104
2
I.
Introduction
This Memorandum and Order, our eighth extensive opinion in
this consolidated multi-district litigation (“MDL”), addresses
eight different motions post-dating the Second Circuit’s decision
in Charles Schwab Corp. v. Bank of America Corp., 883 F.3d 68 (2d
Cir. 2018) (“Schwab”), in which the Circuit reviewed de novo this
Court’s decision to dismiss all claims brought by Charles Schwab
Corporation and its related entities (“Schwab”), see In re LIBORBased Fin. Instruments Antitrust Litig., 2015 WL 6243526 (S.D.N.Y.
Oct. 20, 2015) (“LIBOR IV”).
Since many of the motions have been
brought in response to Schwab, we summarize the relevant rulings
in the decision before addressing each motion on its merits.
II.
Background
The nature of LIBOR, its alleged manipulation, and the parties
in this case have been explored in our prior opinions. 1
Thus, we
assume familiarity with the facts. Likewise, the unique procedural
journey of Schwab’s action 2 needs not be repeated here as it was
1
In re LIBOR-Based Fin. Instruments Antitrust Litig., 299 F. Supp. 3d
430 (S.D.N.Y. 2018) (“LIBOR VII”); In re LIBOR-Based Fin. Instruments Antitrust
Litig., 2016 WL 7378980 (S.D.N.Y. Dec. 20, 2016) (“LIBOR VI”); In re LIBORBased Fin. Instruments Antitrust Litig., 2015 WL 6696407 (S.D.N.Y. Nov. 3, 2015)
(“LIBOR V”); LIBOR IV, 2015 WL 6243526, aff’d in part, vacated and remanded in
part sub nom. Schwab, 883 F.3d 68; In re LIBOR-Based Fin. Instruments Antitrust
Litig., 27 F. Supp. 3d 447 (S.D.N.Y. 2014) (“LIBOR III”); In re LIBOR-Based
Fin. Instruments Antitrust Litig., 962 F. Supp. 2d 606 (S.D.N.Y. 2013) (“LIBOR
II”); In re LIBOR-Based Fin. Instruments Antitrust Litig., 935 F. Supp. 2d 666
(S.D.N.Y. 2013) (“LIBOR I”), vacated and remanded sub nom. Gelboim v. Bank of
Am. Corp., 823 F.3d 759 (2d Cir. 2016) (“Gelboim”).
2 The action under consideration in this opinion is Charles Schwab Corp.,
et al. v. Bank of America Corp., et al., 13-cv-7005 (NRB). Schwab brought three
3
discussed at great length in LIBOR IV, see 2015 WL 6243526, at
*10, *18, and in Schwab, see 883 F.3d at 80-81.
In LIBOR IV, we dismissed Schwab’s complaint in its entirety. 3
On appeal, Schwab argued that we erred in dismissing: (1) its state
law claims for lack of personal jurisdiction, see LIBOR IV, 2015
WL 6243526, at *19-38; (2) its fraud claims relating to fixed-rate
instruments for failure to state a claim, see id. at *65; (3) its
Exchange Act claims for failure to state a claim, see id. at *70;
and (4) some of its unjust enrichment claims as untimely, see id.
at *127-28, *177.
See Schwab, 883 F.3d at 81.
In reviewing our decision to dismiss Schwab’s state law claims
for lack of personal jurisdiction, the Circuit made rulings that
are applicable to three categories of defendants: (1) defendants
who “allegedly solicited and sold debt instruments directly to
other actions that have been consolidated into this MDL: Schwab Short-Term Bond
Market Fund, et al. v. Bank of America Corp., et al., 11-cv-6409 (NRB); Charles
Schwab Bank, et al. v. Bank of America Corp., et al., 11-cv-6411 (NRB); Schwab
Money Market Fund, et al. v. Bank of America Corp., et al., 11-cv-6412 (NRB).
The main difference between the instant action and the other three actions is
the type of federal claims Schwab asserts against defendants. In the instant
action, Schwab asserts claims under the Securities Exchange Act of 1934. In
the other three actions, Schwab asserts claims under the Sherman Act and the
Racketeer Influenced and Corrupt Organization Act (RICO), which we dismissed in
LIBOR I. Schwab appealed only our dismissal of its Sherman Act claims, and the
Second Circuit reversed that dismissal in Gelboim.
On remand, we dismissed
Schwab’s antitrust claims on personal jurisdiction grounds. See LIBOR VI, 2016
WL 7378980, at *25. LIBOR VI is currently on appeal. See In re LIBOR-Based
Fin. Instruments Antitrust Litig., No. 17-1569 (2d Cir. filed May 12, 2017).
3 In its complaint, Schwab asserted federal securities claims based on
defendants’ alleged violations of the Securities Exchange Act of 1934 and SEC
Rule 10b-5 and various state law claims, including: fraud (and aiding and
abetting fraud); unfair business practices; interference with prospective
economic advantage; breach of the implied covenant of good faith and fair
dealing; violations of California’s blue sky law; rescission of contract; and
unjust enrichment.
4
Schwab in California” (“Counterparty defendants”), Schwab, 883
F.3d at 79; (2) defendants who “allegedly sold debt instruments
indirectly
to
Schwab
through
‘broker-dealer
subsidiaries
or
affiliates’” (“Indirect Counterparty defendants”), id.; and (3)
defendants
who
did
not
transact
with
Schwab
but
“allegedly
conspired with the other Defendants to manipulate LIBOR to Schwab’s
detriment” (“Non-Counterparty defendants”), id.
As to Counterparty defendants, the Circuit found that “[t]he
solicitation of and sale of financial instruments to Schwab in
California” were sufficient to establish personal jurisdiction. 4
Id. at 83.
However, the Circuit continued, “sales in California
do not alone create personal jurisdiction for claims premised
solely on Defendants’ false LIBOR submissions in London” because
Schwab “must establish the court’s jurisdiction with respect to
each
claim
asserted.”
Id.
(quoting
Sunward
McDonald, 362 F.3d 17, 24 (2d Cir. 2004)).
Circuit
held
that
Schwab’s
allegations
4
Elecs.,
Inc.
v.
In addition, the Second
were
“insufficiently
In making this ruling, the Second Circuit considered declarations of
several Schwab employees, see Goldman Decl., ECF No. 1512; Hastings Decl., ECF
No. 1513; Klingman Decl., ECF No. 1514, that had not been previously filed and,
therefore, played no part in LIBOR IV.
The declarations alleged that some
defendants solicited business from Schwab via telephone calls, emails, Bloomberg
messages, and other forms of solicitation in California. See Hastings Decl.
¶4, Klingman Decl. ¶4.
No such allegation was even mentioned in Schwab’s
amended complaint (ECF No. 672) that we reviewed in LIBOR IV.
Had Schwab
submitted those affidavits to this Court, our ruling would have been different
at least as to Counterparty defendants.
See In re LIBOR-Based Fin. Inst.
Antitrust Litig., 2016 WL 1301175, at *4 (S.D.N.Y. Mar. 31, 2016), ECF No. 1357
(“March 31, 2016 Order”) (finding that defendants’ solicitation and sale of
mortgage loans to Freddie Mac supported the exercise of personal jurisdiction).
5
individualized
to
make
out
a
prima
facie
case
of
personal
jurisdiction over” Citibank, HSBC, and JPMorgan Chase because
“each of those ‘Defendants’ is
actually two distinct Defendants
– a parent and a wholly owned subsidiary”; Schwab must put forth
sufficiently individualized allegations against each defendant so
that this Court could determine whether defendant “sold directly
to Schwab and, if not, whether [defendant] should be considered an
indirect seller or non-seller (or whether it belongs in this
lawsuit at all).”
Id. at 84.
As to Indirect Counterparty defendants, the Circuit found
Schwab’s allegations of agency relationship insufficient.
In
order to establish specific jurisdiction over a defendant based on
its affiliate’s or subsidiary’s activities in California, Schwab
must plausibly allege that the subsidiary or affiliate acted as
the defendant’s agent in California “for the benefit of, with the
knowledge
and
consent
nonresident principal.”
of,
and
under
some
control
by,
the
Id. at 85 (quoting Grove Press, Inc. v.
Angleton, 649 F.2d 121, 122 (2d Cir. 1981)).
As to Non-Counterparty defendants, the Circuit adopted the
three-factor test for alleging a conspiracy theory of jurisdiction
set forth in Unspam Technologies, Inc. v. Chernuk, 716 F.3d 322,
328 (4th Cir. 2013).
Schwab must allege that: “(1) a conspiracy
existed; (2) the defendant participated in the conspiracy; and (3)
a co-conspirator’s overt acts in furtherance of the conspiracy had
6
sufficient contacts with a state to subject that co-conspirator to
jurisdiction in that state.”
Schwab, 883 F.3d at 87.
In alleging
conspiracy jurisdiction, Schwab could not rely on a defendant’s
sale of LIBOR-based instruments as an overt act in furtherance of
the pled conspiracy because “the conspiracy to manipulate LIBOR
had nothing to do with the California transactions, and there is
thus no reason to impute the California contacts to the coconspirators.” Id. Finally, the court rejected Schwab’s assertion
that
personal
jurisdiction
could
be
established
over
all
defendants based on “the obvious and direct effects of [defendants’
manipulation of LIBOR] in California.”
Id.
Mere foreseeability
that the effects of LIBOR manipulation would “reach an economy as
large as California’s does not mean that Defendants’ conduct in
London was ‘expressly aimed’ at that state.”
Id. at 88.
Turning to our dismissal of Schwab’s fraud and Exchange Act
claims concerning fixed-rate notes, the Second Circuit affirmed
our decision because fixed-rate notes “do not reference LIBOR at
all.”
Id. at 91.
Since Schwab did not plausibly allege that
defendants made false LIBOR submissions “[to] induc[e] purchases
of fixed-rate instruments,” id. at 92, or “in connection with
Schwab’s purchase of fixed-rate instruments,” id. at 96, Schwab
could not assert state law or securities fraud claims concerning
fixed-rate notes. The Circuit noted: “When Schwab purchased fixedrate instruments, it received exactly what it expected.”
7
Id.
The
Circuit,
however,
reversed
our
decision
to
dismiss
Schwab’s Exchange Act claims concerning floating-rate notes.
In
LIBOR IV, we found that Schwab’s claims failed at the causation
stage because, if LIBOR was “persistently suppressed when Schwab
bought LIBOR-based bonds, then the bond’s expected future interest
payments would also have been suppressed.”
*70.
2015 WL 6243526, at
Thus, since a bond’s price is “equal to the present value of
its expected future interest and principal payments, the bond’s
purchase price would also necessarily have been suppressed, so
that Schwab may reap a windfall now that suppression has ended.”
Id.
The Circuit disagreed, finding that “[a]lthough a depressed
LIBOR that caused expectations of future interest payments to
decrease might result in lock-step reductions in the price of
floating-rate instruments,” such an effect was not certain and
could not be assumed at the pleading stage.
93.
Nonetheless,
causation
were
finding
unclear,
that
the
Schwab’s
court
Schwab, 883 F.3d at
allegations
instructed
Schwab
of
loss
to
“add
allegations clarifying the loss causation theory or theories on
which it relies.”
Id.
Schwab also reversed our partial dismissal of Schwab’s unjust
enrichment claims.
In LIBOR IV, we found that, under California
law, the statute of limitations on fraud claims “begins when ‘a
plaintiff suspects or should suspect that her injury was caused by
wrongdoing.’” 2015 WL 6243526, at *127 (quoting Jolly v. Eli Lilly
8
& Co., 44 Cal. 3d 1103, 1110 (1988)).
Since it was unclear when
Schwab “became aware of the news articles that would have put them
on inquiry notice,” we did not dismiss any tort claims as untimely.
Id. at *177.
However, we held that Schwab’s unjust enrichment
claims were partially time-barred because an unjust enrichment
claim was subject to a more limited discovery rule under which
“the clock starts when the breach is no longer ‘difficult . . . to
detect.’”
Id. at *128 (quoting April Enters., Inc. v. KTTV, 195
Cal. Rptr. 421, 436 (Ct. App. 1983)).
The Second Circuit found
that we had erred in applying the more limited discovery rule to
Schwab’s unjust enrichment claims.
Since the claims “sound[ed] in
fraud,” they were subject to the inquiry notice rule as set forth
in Jolly.
883 F.3d at 97.
Accordingly, “partial dismissal of the
unjust enrichment claims was unwarranted.”
Id.
Although the Circuit considered only Schwab’s action, the
Schwab decision has broader implications for all actions in this
MDL
because
the
decision
affirmed
several
key
jurisdictional
rulings that we repeatedly made in our prior opinions.
First,
defendants’ sales-related activities in plaintiffs’ forum states
cannot establish specific jurisdiction over claims premised on
defendants’ “daily LIBOR submissions to the BBA in London” because
“activities in London do not constitute [in-forum] contacts.”
Schwab, 883 F.3d at 84; see also LIBOR IV, 2015 WL 6243526, at *30
(“[T]hat a panel bank defendant engaged in LIBOR ‘marketing’
9
activities which reached a given forum state does not mean that
the same defendant is subject to personal jurisdiction in that
state on the basis of the defendant’s manipulation of LIBOR.”).
Second, “the conspiracy to manipulate LIBOR had nothing to do with”
defendants’ transactions with plaintiffs, because the sale of
LIBOR-based instruments motivated by defendants’ “financial selfinterest” could not have furthered their conspiracy to manipulate
LIBOR.
Schwab, 883 F.3d at 87; see also LIBOR VI, 2016 WL 7378980,
at *9 (“[D]efendants’ sales and trades of LIBOR-based products to
plaintiffs in the United States are not within the scope of the
reputation-motivated
antitrust
conspiracy.”).
Third,
mere
foreseeability that the effects of LIBOR manipulation could be
felt in plaintiffs’ forum states “does not mean that Defendants’
conduct in London was ‘expressly aimed’ at that state.”
Schwab,
883 F.3d at 87; see also LIBOR IV, 2015 WL 6243526, *20 (“[W]hile
the effect of LIBOR manipulation in the states in which plaintiffs
sued was foreseeable, mere foreseeability does not confer personal
jurisdiction.”).
ruling
that,
In sum, the Circuit did not disturb our general
unless
plaintiffs
can
plausibly
allege
that
“a
defendant determined, or transmitted, a false LIBOR submission”
from the United States, id. at *32, we would exercise personal
jurisdiction only over Counterparty defendants for plaintiffs’
claims that are premised on their transactions with defendants or
their purchases of instruments issued by defendants.
10
Finding that Schwab’s deficient pleading of jurisdictional
allegations was not insurmountable, the Second Circuit granted
Schwab leave to amend so that it could “clarify the status of the
grouped entities . . . and add allegations in support of its agency
and conspiracy theories of jurisdiction.”
Id. at 90.
After the
Circuit’s
plaintiffs
the
remand,
we
afforded
other
same
opportunity by instructing plaintiffs who wished to move for leave
to amend to “demonstrate why leave to amend [was] warranted.”
Apr. 11, 2018 Order, ECF No. 2490.
See
However, we warned moving
plaintiffs that “the scope of any amendment shall be limited to
those prompted by the Second Circuit’s decision in Schwab.”
Id.
In Part III of this opinion, we consider the motions for leave
to amend filed by six different plaintiffs: (1) the Federal Home
Loan Mortgage Corporation (“Freddie Mac”), see ECF No. 2563; (2)
the Federal Deposit Insurance Corporation (“FDIC”) 5 in its capacity
as receiver for 38 closed banks, see ECF No. 2562; (3) Principal
Financial
Group
Financial”),
see
affiliated
funds
plaintiffs
in
the
and
ECF
its
No.
affiliated
2546;
(“Principal
lending
(4)
Principal
Funds”),
institutions
5
entities
see
ECF
class
(“Principal
Funds
No.
and
its
2551;
(5)
action
(“Lender
The FDIC seeks to incorporate the complaint filed on behalf of Doral
Bank (“Doral”) in 18-cv-1540 (NRB) into the complaint filed on behalf of 38
closed banks in 14-cv-1757 (NRB). Defendants do not oppose this request. See
FDIC Mem. of Law in Supp. of Mot. for Leave to Amend, at 1, ECF No. 2568.
Therefore, Doral’s claims that survive the motion to dismiss will be
consolidated into the main complaint.
To avoid confusion between the two
actions, we refer to the FDIC’s complaint filed on behalf of Doral as Doral’s
complaint in this opinion.
11
plaintiffs”), see ECF No. 2552; and (6) the National Credit Union
Administration Board 6 (“NCUA”), see ECF No. 2544. 7
In
Part
dismissal
of
IV,
we
consider
Schwab’s
second
defendants’
amended
motion
for
partial
complaint 8
and
Doral’s
complaint 9 for lack of personal jurisdiction and venue and for
failure to state a claim. See ECF No. 2622. In Part V, we consider
defendants’ motion for judgment on the pleadings to dismiss in the
Over-the-Counter (OTC) class action plaintiffs’ antitrust claims
based
on
affiliates.
transactions
with
Panel
Banks’
subsidiaries
or
See ECF No. 2620.
III. Plaintiffs’ Motions for Leave to Amend
In allowing plaintiffs to move for leave to amend, we limited
the scope of proposed amendments “to those prompted by the Second
Circuit’s decision in Schwab.”
Apr. 11, 2018 Order.
6
We also
The NCUA brought its action as liquidating agent of U.S. Central Federal
Credit Union (“U.S. Central”), Western Corporate Federal Credit Union, Members
United Corporate Federal Credit Union, Southwest Corporate Federal Credit Union,
and Constitution Corporate Federal Credit Union.
7 In this opinion, we refer to Freddie Mac, FDIC, Principal Financial,
and Principal Funds collectively as “FFP plaintiffs.”
We also refer to
Principal Financial and Principal Funds as “Principal.” Per our April 11, 2018
Order, each moving plaintiff submitted its proposed amended complaint: (1)
Freddie Mac Proposed Third Amended Compl. (“Freddie Mac PTAC”), ECF No. 25671; (2) FDIC Proposed Second Amended Compl. (“FDIC PSAC”), ECF No. 2568-1-2; (3)
Principal Financial Proposed Second Amended Compl. (“Principal Financial
PSAC”), ECF No. 2547-1; (4) Principal Funds Proposed Second Amended Compl.
(“Principal Funds PSAC”), ECF No. 2554-1; (5) Lender Plaintiffs Proposed Third
Amended Consolidated Class Action Compl. (“Lender Pls. PTAC”), ECF No. 2572-1;
and (6) NCUA Proposed Second Amended Compl. (“NCUA PSAC”), ECF No. 2545-1.
8 After the Circuit’s remand, Schwab filed their second amended complaint
as of right. See Schwab Second Am. Compl. (“Schwab SAC”), ECF No. 2578.
9 Doral’s complaint was filed on February 20, 2018.
See Compl., ECF No.
1, 18-cv-1540 (NRB).
12
cautioned plaintiffs that Schwab “offer[ed] no occasion to add or
alter unrelated allegations that a plaintiff wishes had been better
pleaded in the first instance.”
1.
Id.
General Legal Standard for Leave to Amend
Rule 15 of the Federal Rules of Civil Procedure directs a
court to “freely give leave [to amend] when justice so requires.”
Fed. R. Civ. P. 15(a)(2).
However, motions for leave to amend
“should generally be denied in instances of futility, undue delay,
bad faith or dilatory motive, repeated failure to cure deficiencies
by amendments previously allowed, or undue prejudice to the nonmoving party.”
Burch v. Pioneer Credit Recovery, Inc., 551 F.3d
122, 126 (2d Cir. 2008) (per curiam).
A proposed amendment is futile if “the proposed new pleading
fails to state a claim on which relief can be granted.”
Pigott, 749 F.3d 117, 134 (2d Cir. 2014).
Krys v.
“The adequacy of a
proposed amended complaint to state a claim is to be judged by the
same
standards
pleading.”
as
those
governing
the
adequacy
of
a
filed
Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d
162, 185 (2d Cir. 2012).
Thus, when evaluating the adequacy of
claims in a proposed amended complaint, we follow the standards
applicable to a motion to dismiss brought under Rule 12(b)(6),
“accepting as true all factual allegations in the complaint, and
drawing
all
reasonable
inferences
in
the
plaintiff’s
Barrows v. Burwell, 777 F.3d 106, 111 (2d Cir. 2015).
13
favor.”
The standards of review under Rule 12(b)(2) apply to proposed
amendments related to personal jurisdiction. 10
We must construe
all jurisdictional allegations “in the light most favorable to
plaintiffs, resolving all doubts in their favor.”
Marward Shipping Co., 521 F.3d 122, 126 (2d Cir. 2008).
Porina v.
However,
we may not “draw argumentative inferences in the plaintiff’s
favor,” Robinson v. Overseas Military Sales Corp., 21 F.3d 502,
507 (2d Cir. 1994) (internal quotation marks omitted), and need
not “accept as true a legal conclusion couched as a factual
allegation,” Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d
Cir. 1998).
If the defendant challenges personal jurisdiction at
the pleading stage, the plaintiff bears the burden of making a
prima
facie
showing
that
personal
jurisdiction
exists.
See
Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A., 722 F.3d 81, 84-85
(2d Cir. 2013).
Jurisdiction must be “establish[ed] . . . with
respect to each claim asserted.” Sunward, 362 F.3d at 24 (emphasis
in original).
A motion to amend will be denied if the amended
complaint does not provide “any basis to demonstrate that the
10 With respect to actions brought in states other than New York and
transferred here for pretrial proceedings under the MDL statute, 28 U.S.C.
§ 1407 (2012), we analyze whether personal jurisdiction exists in the transferor
court, not in New York. See In re Ski Train Fire in Kaprun, Austria on Nov.
11, 2000, 343 F. Supp. 2d 208, 213 (S.D.N.Y. 2004). Nonetheless, we conduct
this analysis according to the law not of the transferor circuit, but of the
Second Circuit.
See In re Methyl Tertiary Butyl Ether (“MTBE”) Prod. Liab.
Litig., No. 00-cv-1898 (SAS), 2005 WL 106936, at *5 (S.D.N.Y. Jan. 18, 2005);
see also Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993) (per curiam) (“[A]
transferee court should apply its interpretations of federal law, not the
constructions of federal law of the transferor circuit.”).
14
district
court
defendant.
would
have
[]
personal
jurisdiction”
over
a
2.
Spiegel v. Schulmann, 604 F.3d 72, 78 (2d Cir. 2010).
Amendments Related to Personal Jurisdiction
We first address the NCUA’s and FFP plaintiffs’ proposed
amendments
related
to
personal
jurisdiction
organized
by
the
categories of claims to which the amendments correspond: (1)
Counterparty
Claims
(i.e.,
common
law
claims
against
certain
defendants based on their direct transactions with plaintiffs);
(2) Indirect Counterparty Claims (i.e., common law claims against
defendants
based
subsidiaries
and
on
plaintiffs’
affiliates);
transactions
and
(3)
with
defendants’
Non-Counterparty
Claims
(i.e., antitrust and common law claims against all defendants based
on
their
alleged
participation
in
an
alleged
conspiracy
to
manipulate LIBOR that occurred in London).
2.1. Counterparty Claims
For
context
jurisdictional
Counterparty
and
clarity,
rulings
addressing
defendants.
For
we
summarize
common
swap
law
our
previous
claims
against
counterparties,
we
upheld
specific jurisdiction “where a plaintiff was located when it
entered into the swap agreement.”
LIBOR IV, WL 6243526, at *37.
For bond counterparties, we upheld specific jurisdiction “where
the bond was issued.” 11
Id.
As to both, we upheld specific
11
In other words, bond obligors can be subjected to personal jurisdiction
where “the bond was placed with an underwriter or agent for sale or marketing.”
LIBOR IV, WL 6243526, at *37. The Court clarified this requirement during a
15
jurisdiction “where permitted by a forum selection clause, where
the defendant’s LIBOR submission was determined or transmitted,
and where a trader requested an artificial LIBOR submission.”
Id.
Finally, we upheld specific jurisdiction over claims arising out
of the defendant’s “course of dealing” in the plaintiff’s forum
state.
See March 31, 2016 Order, 2016 WL 1301175, at *4; see also
Schwab, 883 F.3d at 83 (allegations that defendants solicited and
sold
“financial
sufficient
to
instruments
“make
out
a
to
prima
Schwab
facie
in
California”
showing
of
are
personal
jurisdiction for claims relating to those transactions.”).
FFP plaintiffs misleadingly simplify the rulings of this
Court and the Second Circuit by asserting that “even a single
transaction can support personal jurisdiction over a defendant.”
Pls.’ Joint Reply to Defs.’ Opp. To Pls.’ Mots. Leave to Amend on
Jurisdictional and Venue Grounds (“Pls.’ Joint PJ Br.”), at 7, ECF
No. 2667.
Admittedly, there is no question that the commission of
some single or occasional act may establish specific jurisdiction.
See Daimler AG v. Bauman, 571 U.S. 117, 127 (2014).
But as
demonstrated by two cases that the Second Circuit cites in Schwab
– Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158 (2d Cir.
2010) and Eades v. Kennedy, PC Law Offices, 799 F.3d 161 (2d Cir.
telephone conference on May 19, 2016: “The location of the underwriter is the
office where the deal was actually done. That would include the relevant office
of any other member of the syndicate. The same is true if there actually were
agents involved. The locations do not include all the branch offices of any of
these entities.” Tr. 3:10-15, ECF No. 1429.
16
2015) – the analysis is far more nuanced than plaintiffs posit.
In each case, the Circuit examined the defendant’s contacts in the
context of the defendant’s overall relationship with the forum
state.
See Chloé, 616 F.3d at 170-71 (holding that specific
jurisdiction in New York over the defendant was appropriate because
the
defendant
had
“developed
and
served
a
market
for
its
products”); Eades, 799 F.3d at 168-69 (examining the quality and
nature of the defendant’s contacts – several mailings and telephone
calls – with New York to establish specific jurisdiction).
See
also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476 n.18 (1985)
(“[S]ingle or occasional acts related to the forum may not be
sufficient to establish [specific] jurisdiction if their nature
and quality and the circumstances of their commission create only
an attenuated affiliation.” (citation and internal quotation marks
omitted)).
articulated
The
for
analytical
assessing
framework
defendants’
adheres to these binding precedents.
6243526,
at
*31
(The
Court
would
that
we
suit-related
previously
contacts
See, e.g., LIBOR IV, WL
“consider
as
a
whole
the
defendants’ suit-related contacts with the forum, including prior
negotiations and contemplated future consequences, along with the
terms of the contract and the parties’ actual course of dealing.”)
(citation and internal quotation marks omitted).
Consistent with our previous rulings and the aforementioned
precedents,
we
allow
moving
17
plaintiffs’
amendments
that
sufficiently demonstrate a “course of dealing” in plaintiffs’
forum states.
For example, Freddie Mac alleges that multiple
defendants and their affiliated entities solicited business and
sold mortgage-backed securities (“MBS”) and mortgage loans to
Freddie Mac in Virginia. 12
See, e.g., Freddie Mac PTAC ¶¶ 23, 30,
45, 47, 68, 70, 87, 89, 99, 101, 116, 118, 129, 131, 167, 169.
Whereas the mere issuance of a LIBOR-based bond would not support
personal jurisdiction, see LIBOR IV, WL 6243526, at *37, plaintiffs
specifically allege that defendants purposely solicited and sold
LIBOR-based financial products directly to Freddie Mac.
As we
held in the March 31, 2016 Order, such allegations of direct
solicitation or transactions between defendant and plaintiff are
sufficient to establish specific jurisdiction over defendant.
That said, we reject the NCUA’s amendments that seek to
establish specific jurisdiction over defendants based on their
alleged contacts with Kansas.
See NCUA PSAC ¶¶ 43-44.
According
to the NCUA, its motion to amend is in response to a footnote in
LIBOR IV. 13
See 2015 WL 6243526 at *31 n.51 (disregarding the
NCUA’s argument that defendants engaged with U.S. Central, a Kansas
12 According to defendants, Freddie Mac fails to specify that the mortgage
loans were “tied to” LIBOR.
See Joint Mem. of Law in Supp. of Defs’ Mot.
Dismiss for Lack of Personal Jurisdiction and Venue and in Opp’n to Pls.’ Mots.
Leave to Amend on Jurisdiction and Venue Grounds (“Defs.’ Joint PJ Br.”), at
28, ECF No. 2627. At oral argument, Freddie Mac confirmed that its common law
claims asserted against Counterparty defendants are all premised on the sale of
mortgage loans that are linked to LIBOR. Tr. 29:12-18, ECF No. 2792.
13 Since none of the NCUA’s proposed amendments is related to Schwab, we
note that the NCUA’s motion for leave to amend could and should have been
brought following our decision in LIBOR IV and is thus untimely.
18
credit union, to execute certain transactions with four non-Kansas
credit unions because the NCUA “cite[d] nothing in the complaint
or declarations that specifically support[ed]” that argument).
In
the proposed amended complaint, the NCUA alleges, for example,
that several defendants were “specifically on notice at the time
of transacting with United, Southwest, or WesCorp of U.S. Central’s
role in those transactions.”
NCUA PSAC ¶44.
Defendants were
allegedly also on notice that “swap payments would be made to or
from
an
account
at
U.S.
Central”
in
Kansas. 14
Id.
These
allegations, however, do not show “where a plaintiff was located
when it entered into the swap agreement.”
6243526, at *37.
LIBOR IV, 2014 WL
The fact that the NCUA chose to pay defendants
out of accounts controlled by U.S. Central in Kansas does not mean
that defendants purposefully availed themselves of the privilege
of conducting activities in Kansas.
See Walden v. Fiore, 571 U.S.
277, 284 (2014).
We also reject Principal’s proposed amendment regarding forum
selection clauses in its swap agreements. 15
Principal asserts that
14 The NCUA additionally alleges that securities sold to the credit unions
were “routed through U.S. Central’s safe-keeping accounts,” and that “U.S.
Central took custody of any securities sold to the Credit Unions” and “safekept any interest coupon on the securities paid by the Defendants to the Credit
Unions.” NCUA PSAC ¶ 43.
15 Both Principal and defendants raise arguments that we decline to address
here. First, Principal argued at oral argument that “several of the defendants
have consented to personal jurisdiction in Iowa by registering with the Iowa
Secretary of State,” Tr. 70:23-71:2, but Principal does not propose any
amendment relying on the defendants’ registration in Iowa. Even if we were to
consider Principal’s argument, we would most likely find it meritless under the
Second Circuit precedents. See, e.g., Brown v. Lockheed Martin Corp., 814 F.3d
19
we can exercise specific jurisdiction over Counterparty defendants
based on their swap transactions with Principal because its ISDA
agreements
contained
forum
selection
clauses
designating
the
Southern District of New York as the parties’ forum of choice.
However, Principal’s lawsuit was originally filed in Iowa and was
subsequently
proceedings.
transferred
to
this
District
for
pre-trial
Therefore, “our task is to determine whether [courts
in Iowa] may exercise personal jurisdiction,” and a defendant’s
contractual consent to the jurisdiction of New York is irrelevant
in making that determination.
See LIBOR IV, WL 6243526, at *35.
Finally, defendants broadly assert that moving plaintiffs’
proposed amended complaints do not allow the Court to assess each
defendant’s contacts individually because they collapse affiliated
entities into one single defendant. 16
See Defs.’ Joint PJ Br., at
34; Schwab, 883 F.3d at 84 (holding that Schwab’s allegations as
to
Citibank,
HSBC,
and
JPMorgan
Chase
could
not
establish
jurisdiction over those banks because the allegations were not
619, 623 (2d Cir. 2016). Second, defendants assert that claims based on swap
transactions fail because moving plaintiffs “fail to allege that they filed
suit in the forum where the swap transactions were entered into.” See Defs.’
Joint PJ Br., at 31. Defendants seek to dismiss those claims, which were not
the subject of any amendment, but do not move against any proposed amendment.
Since we are now considering whether proposed amendments are futile in light of
Schwab, we do not resolve those arguments, but note that the parties may raise
them at the motion to dismiss stage.
16 We have previously declined to exercise personal jurisdiction because
of plaintiffs’ insufficiently individualized allegations. See, e.g., March 31,
2016 Order, 2016 WL 1301175, at *4 (rejecting personal jurisdiction over Freddie
Mac’s claims related to bond transactions because Freddie Mac provided “no
description as to what role any defendant played in any sale,” “no description
of any MBS transactions,” and no “suggestion of which defendants in fact sold
these products to plaintiff.”).
20
sufficiently individualized).
However, defendants’ argument is
not persuasive, as plaintiffs allege specific defendant entities
with which they transacted.
See, e.g., Principal Funds PSAC ¶¶
27, 33, 37, 45, 50, 55, 65, 72.
After identifying each defendant
and its role in various transactions, plaintiffs collectively
refer to the affiliated entities under a single name.
Principal Funds PSAC ¶ 28.
8(a)’s requirements.
See, e.g.,
Such a practice does not violate Rule
See Wydner v. McMahon, 360 F.3d 73, 79 (2d
Cir. 2004) (holding that the “key to Rule 8(a)’s requirements is
whether adequate notice is given,” and that “fair notice” is given
when it allows the defendant “to answer and prepare for trial,
allow the application of res judicata, and identify the nature of
the case so that it may be assigned the proper form of trial”
(citations and internal quotation marks omitted)).
2.2. Indirect Counterparty Claims
Though the corporate form is generally accorded respect under
the law, an act taken by a corporate entity’s subsidiary or
affiliate can be imputed to the entity in certain circumstances
for purposes of personal jurisdiction.
is
“plausible
that
an
agency
As explained in Schwab, it
relationship
between
a
parent
corporation and a subsidiary that sells securities on the parent’s
behalf could establish personal jurisdiction over the parent in a
state in which the parent ‘indirectly’ sells the securities.”
F.3d
at
85-86.
To
establish
21
jurisdiction
over
an
883
Indirect
Counterparty defendant, moving plaintiffs must plausibly allege
that defendant’s subsidiary or affiliate acted as defendant’s
agent in the relevant forum state “for the benefit of, with the
knowledge
and
consent
nonresident principal.”
of,
and
under
some
control
by,
the
Id. at 85 (quoting Grove Press, Inc. v.
Angleton, 649 F.2d 121, 122 (2d Cir. 1981)); see also Ingenito v.
Riri USA, Inc., 89 F. Supp. 3d 462, 476 (E.D.N.Y. 2015); CutCo
Indus., Inc. v. Naughton, 806 F.2d 361, 366 (2d Cir. 1986) (“To be
considered an agent for jurisdictional purposes, the alleged agent
must have acted in the state for the benefit of, and with the
knowledge and consent of the non-resident principal.” (citation
and internal quotation marks omitted)).
We have previously addressed the applicable pleading standard
for common law claims against Indirect Counterparty defendants.
In LIBOR
V,
we
considered
whether
two
OTC
plaintiffs,
Texas
Competitive Electric Holdings (“TCEH”) and the SEIU Pension Plans
Master Trust (“SEIU”), sufficiently alleged agency relationships
between Credit Suisse Group AG (“CSGAG”), the parent entity, and
its two affiliates, Credit Suisse International (“CSI”) and Credit
Suisse (USA), Inc. (“CSUSA”). 17
2015 WL 6696407, at *21.
TCEH
alleged that it had traded a swap with CSI, and SEIU alleged that
17
Although TCEH and SEIU named CSGAG as the panel bank, Credit Suisse
stated that Credit Suisse AG (“CSAG”) was the panel bank. See LIBOR V, 2015 WL
6696407, at *20 n.31, *22 n.34. We granted only SEIU leave to make its agency
allegations against CSAG instead of against CSGAG because we rejected TCEH’s
allegations of an agency relationship between CSI and CSGAG. See id.
22
it had purchased corporate bonds issued by CSUSA from the issuer’s
broker-dealer affiliate.
See LIBOR V, 2015 WL 6696407, at *21.
We found that TCEH’s allegations, even if true, did not
establish an agency relationship because TECH failed to show that
CSGAG managed CSI’s swap-trading operations, see Elbit Systems,
Ltd. v. Credit Suisse Group, 917 F. Supp. 2d 217, 225–26 (S.D.N.Y.
2013), or directed the specific CSI activities at issue, see In re
South African Apartheid Litigation, 617 F. Supp. 2d 228, 274–75
(S.D.N.Y. 2009).
LIBOR V, 2015 WL 6696407, at *21.
allegations 18
conclusory
of
“corporate
ownership,
TCEH’s
combined
marketing, [and] shared board membership” were “insufficient to
establish
entities.”
a
principal-agent
relationship
between
corporate
LIBOR V, 2015 WL 6696407, at *21 (citing Fletcher v.
Atex, Inc., 68 F.3d 1451, 1459-62 (2d Cir. 1995)).
See also
Williams v. Yamaha Motor Co., 851 F.3d 1015, 1025 n.5 (9th Cir.
2017) (allegations that the parent and subsidiary are “the agents
or employees of each other” and that the parent is “legally
responsible” for the subsidiary are conclusory legal statements
that cannot establish an agency relationship). Because TCEH failed
to put forth any factual allegations that demonstrated how the
18
TCEH alleged “that CSI is ‘controlled’ by CSGAG, that the two entities
use the same brand and logo, that Credit Suisse presents itself as an ‘integrated
global bank,’ that it ‘takes a unified approach to risk management,’ that CSI
personnel reports to CSGAG personnel, that CSI is generally managed as part of
CSGAG, that CSI shares revenue with CSGAG, that CSGAG lends money to CSI, that
CSGAG and CSI have overlapping Boards of Directors, and that CSI adheres to
CSGAG’s employment policies.” LIBOR V, 2015 WL 6696407, at *21.
23
bank managed or directed its agent’s operations and activities, we
rejected its attempt to establish personal jurisdiction over the
principal (i.e., Indirect Counterparty) bank.
In contrast, we reached a different conclusion with respect
to SEIU.
similar
Id. at *22.
arguments,
Although SEIU and TCEH essentially advanced
we
reasoned
that,
unlike
a
discrete
swap
transaction, a bond issuance “is a major corporate event that
officers and directors of the corporate parent would typically
oversee.”
Id.
It was unlikely that CSGAG allowed CSUSA to issue
securities “without top-level approval,” and it was plausible that
CSUSA “acted at the direction of its corporate parents.”
Id.
In
other words, SEIU plausibly alleged that the agent acted “for the
benefit of, with the knowledge and consent of, and under some
control by” the principal bank.
our
analytical
approach
in
Schwab, 883 F.3d at 85.
assessing
claims
against
Thus,
Indirect
Counterparty defendants has been very much in line with Schwab.
Moving plaintiffs’ proposed amendments are indistinguishable
from the ones made by TCEH: they similarly lack the requisite
factual basis needed to support the conclusion that the subsidiary
acted “for the benefit of, with the knowledge and consent of, and
under some control by” the principal.
The list of conclusory
allegations of intra-corporate affiliations made by plaintiffs
include:
that
each
parent
defendant
operates
the
investment
division as part of a single global business unit without regard
24
to corporate formalities and with common branding 19; that each
parent treats its subsidiary or affiliate’s profits as the global
unit’s profits 20; that the related entities have overlapping key
executives 21; and that the subsidiary’s personnel reports to the
parent defendant’s personnel. 22
These allegations, along with
legal conclusions that defendants “knew of,” “directed,” and/or
“benefited” from their subsidiaries or affiliates’ transactions
with
plaintiffs, 23
jurisdiction
over
are
insufficient
defendants.
See
to
establish
Jazini,
148
personal
F.3d
at
185
(declining to find specific jurisdiction over a parent entity based
on its subsidiary’s activities because the pleading “lacked the
factual specificity” necessary to establish jurisdiction).
Freddie
Mac’s
additional
allegations
that
it
internally
considered the financial strength of the parent entities through
its quarterly “Dealer Scorecards,” 24 in which defendants provided
research notes to Freddie Mac, 25 do not demonstrate that the parent
entities managed their subsidiaries’ operations or directed their
activities with Freddie Mac.
None of the amendments demonstrates
19 See, e.g., Freddie Mac PTAC ¶¶ 40, 76, 114, 177; FDIC PSAC ¶¶ 38, 59,
90, 97; Principal Funds ¶¶ 30, 38, 54.
20 See, e.g., Freddie Mac PTAC ¶¶ 40, 53, 76, 96, 97, 108; FDIC PSAC ¶¶
64, 90; Principal Funds ¶¶ 30, 51, 62.
21 See, e.g., Freddie Mac PTAC ¶¶ 41, 57, 76, 94, 196; FDIC PSAC ¶¶ 63,
68; Principal Funds PSAC ¶¶ 24, 31, 46.
22 See, e.g., Freddie Mac PTAC ¶¶ 49, 58, 76, 90, 177, 112, 198.
23 See, e.g., Freddie Mac PTAC ¶¶ 30, 40, 45, 60, 76, 94, 108, 125, 140.
24 Freddie Mac PTAC ¶¶ 12-14, 31, 46, 69, 88, 100, 117, 130, 151, 168,
191.
25 Freddie Mac PTAC ¶¶ 61, 95, 119, 132, 160.
25
that the affiliate or subsidiary entity conducted the transactions
with Freddie Mac “for the benefit of, with the knowledge and
consent of, and under some control by” the parent entity.
However, Freddie Mac’s allegations regarding Royal Bank of
Scotland (“RBS”) and its non-defendant subsidiary, RBS Securities
Inc. (“RBSI”), suffice to establish specific jurisdiction over
RBS.
Freddie Mac alleges that RBSI’s sale of MBS to Freddie Mac
was a part of a strategy that was directed by RBS’s executives to
“overvalue asset-backed securities to protect RBS’s reputation.”
Freddie Mac PTAC ¶ 178.
Since we have found that RBSI’s activities
of soliciting Freddie Mac are sufficient to establish specific
jurisdiction over RBSI, see supra Part III.2.1., and since Freddie
Mac plausibly alleges that RBS managed RBSI’s operations and
directed
its
transactions
with
Freddie
Mac,
we
can
exercise
jurisdiction over RBS based on RBSI’s activities in Virginia. 26
2.3. Non-Counterparty Claims and Conspiracy
Jurisdiction
Moving plaintiffs assert that certain acts taken by several
defendants, who are mostly domestic banks, can establish personal
26
Defendants argue that plaintiffs must show the parent entity’s
“pervasive control” over its agent. Defs.’ Joint PJ Br., at 38 (quoting Wilder
v. News Corp., No. 11-cv-4947 (PGG), 2015 WL 5853763, at *6 (S.D.N.Y. Oct. 7,
2015)). However, plaintiffs correctly point out that Judge Gardephe’s ruling
in Wilder only concerns whether “a foreign subsidiary of a United States
corporation may be subject to general jurisdiction in the United States on the
basis of the parent-subsidiary relationship.”
Id. (emphasis added).
In
contrast, under consideration in our case is whether an affiliate’s specific
acts (i.e., transactions involving LIBOR-based instruments) can establish
specific jurisdiction over its parent for legal claims based on those
transactions.
26
jurisdiction
over
all
defendants,
including
foreign
bank
defendants who did not have any contractual relationships with
plaintiffs, for fraud and antitrust claims.
The acts allegedly
constitute overt acts that furthered “a conspiracy aimed at the
projection of financial soundness.”
*7.
LIBOR VI, 2016 WL 7378980, at
Accordingly, moving plaintiffs claim that all defendants,
regardless of their domiciles or membership on the LIBOR panel,
can be haled into this Court applying conspiracy jurisdiction.
It is important to note at the threshold that, given the
relevant holdings of Schwab, this Court may not exercise personal
jurisdiction
over
Non-Counterparty
defendants
for
fraud
and
antitrust claims if moving plaintiffs cannot invoke (or rely upon)
conspiracy jurisdiction. First, Schwab held that this Court cannot
exercise specific jurisdiction over fraud claims premised on LIBOR
submissions
in
London
because
“activities
in
London
constitute” contacts with the relevant forum states. 27
at 84.
do
not
883 F.3d
Second, Schwab rejected the assertion that, since the
effects of LIBOR manipulation on California were “foreseeable,”
personal jurisdiction should attach, because the conduct was not
expressly aimed at the state.
Id. at 87.
Although the Second
Circuit rejected the “foreseeability” argument only in the context
27 Although Schwab made it clear that specific jurisdiction does not exist
over defendants for fraud claims, the Circuit’s reasoning applies equally to
tortious interference claims, which are also predicated on allegedly false LIBOR
submissions in London. See infra at Part IV.3.5.
27
of Schwab’s California transaction claims, the Circuit’s rationale
effectively affirms our prior rulings that the manipulation of
LIBOR was not expressly aimed at the United States.
See LIBOR IV,
2015 WL 6243526, at *32 (“[T]here is no suggestion, and it does
not
stand
to
reason,
that
foreign
defendants
aimed
their
manipulative conduct at the United States or any particular forum
state.”); LIBOR VI, 2016 WL 7378980, at *9 (holding that the
conduct did not have sufficient contacts with the United States to
establish jurisdiction over all defendants for antitrust claims).
Given that LIBOR was “the world’s most important number” that
served as “one of the most reliable barometers of risk in the
global economy,” Freddie Mac PTAC ¶ 2, it is simply implausible
that defendants expressly aimed their conduct at the United States.
In LIBOR VI, we declined to express an opinion as to “whether
conspiracy jurisdiction survives as a doctrine” after the Walden
decision and recent opinions 28 in the Southern District of New York
because plaintiffs did not plausibly allege that “any defendant
committed an act pursuant to the alleged conspiracy in the United
28 For example, Judge Forrest rejected the idea that an assertion of
participation in a conspiracy “generally can provide a standalone basis for
jurisdiction subject only to the constraints of due process.” In re Alumnium
Warehousing Antitrust Litigation, 90 F. Supp. 3d 219, 227 (S.D.N.Y. 2015). If
a foreign entity participated in a conspiracy but did not have sufficient
contacts with the United States, then personal jurisdiction could not be
exercised over that entity based on a co-conspirator’s act that occurred in or
was expressly aimed at the United States. Id. However, if the entity “in fact
engaged in some affirmative act directed at the forum,” the rules and doctrines
applicable to personal jurisdiction, such as Walden, are sufficient to establish
personal jurisdiction without conspiracy jurisdiction. Id.
28
States.” 2016 WL 7378980, at *12. In light of the Schwab decision,
we do not question whether conspiracy jurisdiction is a cognizable
basis for personal jurisdiction in this Circuit.
However, any discussion of conspiracy jurisdiction must be
For one, the states in which Schwab, 29
approached with caution.
Principal, 30 and the FDIC 31 bring their state law claims either
reject
conspiracy
jurisdiction
or
impose
more
stringent
requirements than the ones adopted by Schwab. Moreover, a cautious
approach to the exercise of conspiracy jurisdiction finds support
in
the
criminal
jurisprudence.
law
and,
more
broadly,
in
jurisdiction
For example, in the criminal law, from which the
theory of conspiracy jurisdiction is derived, a co-conspirator’s
statement
allegedly
made
in
furtherance
of
a
conspiracy
is
admissible at trial (despite a grand jury indictment) only after
a trial court finds by a preponderance of the evidence that the
conspiracy existed and that both the declarant and the defendant
29 California does not recognize conspiracy as a basis for asserting
jurisdiction over a non-forum defendant. See, e.g., Murphy v. Am. Gen. Life
Ins. Co., No. ED CV14-00486 (JAK)(SPX), 2015 WL 4379834, at *9 (C.D. Cal. July
15, 2015); Mansour v. Superior Court, 38 Cal. App. 4th 1750, 1760 (1995).
30 A federal court in Iowa found that conspiracy jurisdiction was not
cognizable under Iowa law. See Brown v. Kerkhoff, 504 F. Supp. 2d 464, 518
(S.D. Iowa 2007) (“This Court concludes a nonresident's alleged participation
in a conspiracy cannot serve as a constitutionally sufficient basis to exercise
in personam jurisdiction over that individual in situations which would
otherwise fail the “minimum contacts” approach.
As a result, Plaintiffs’
allegations of a conspiracy cannot serve as an independent basis for the
exercise of in personam jurisdiction over the nonresident Defendants.”).
31 Under New York law, a plaintiff must allege that a defendant exercised
direction or control over the co-conspirator to establish conspiracy
jurisdiction over the defendant.
See, e.g., Related Companies, L.P. v.
Ruthling, No. 17-cv-4175, 2017 WL 6507759, at *13 (S.D.N.Y. Dec. 18, 2017).
29
were part of that conspiracy. 32
483 U.S. 171, 175-76 (1987).
See Bourjaily v. United States,
Additionally, “a defendant who does
not directly commit a substantive offense” can be liable only if
a co-conspirator’s commission of the offense in furtherance of the
conspiracy was “reasonably foreseeable to the defendant as a
consequence of their criminal agreement.”
Cephas v. Nash, 328
F.3d 98, 101 n.3 (2d Cir. 2003) (emphasis added). 33
While a
wholesale importation of concepts from criminal law is admittedly
unwarranted, a cautious assessment of allegations of conspiracy
jurisdiction seems particularly appropriate in this case, where
moving plaintiffs are relying on random acts taken mainly by
domestic banks to establish jurisdiction over foreign defendants
who
had
no
direct
contacts
with
plaintiffs
whatsoever.
An
expansive exercise of extraterritorial jurisdiction would not only
create comity issues; it would contravene the central dictate of
the Supreme Court’s ruling in Walden that, under the due process
analysis, we must look to the contacts that each defendant himself
or herself created with the forum.
See 571 U.S. at 284.
32 We certainly recognize that the burden of proof in a criminal trial is
different from the pleading stage of a civil case.
33
Interestingly,
the
First
Circuit
has
adopted
“reasonable
foreseeability” as one of the pleading requirements that a plaintiff must meet
to establish conspiracy jurisdiction over a non-forum defendant. See Glaros v.
Perse, 628 F.2d 679, 682 (1st Cir. 1980) (“But, to sustain jurisdiction over an
out-of-state co-conspirator these courts required something more than the
presence of a co-conspirator within the forum state, such as substantial acts
performed there in furtherance of the conspiracy and of which the out-of-state
co-conspirator was or should have been aware.”).
30
Many of the acts that moving plaintiffs now seek to allege
for
purposes
of
establishing
conspiracy
jurisdiction
have
previously been considered as potential grounds for jurisdiction
and rejected by the Court because plaintiffs either: (1) sought to
use the acts to establish specific jurisdiction for claims that
did not arise out of those acts, 34 see LIBOR IV, 2015 WL 6243526,
at *30; or (2) failed “to carry their burden of making a prima
facie showing of minimum contacts” created by the acts, 35 LIBOR VI,
2016 WL 7378980, at *11. 36
Although plaintiffs insist that a
different outcome is now warranted in light of Schwab, see Pls.
Joint PJ Br., at 22, they are mistaken, as that decision affirmed
our analytical framework for assessing acts by defendants that
allegedly furthered the sufficiently pled conspiracy.
In
LIBOR
VI,
we
explained
that,
since
the
actual
conspiratorial agreement took place in a foreign jurisdiction,
special attention must be given to whether plaintiffs meet the
34 Plaintiffs previously tried to establish specific jurisdiction over
Panel Bank defendants and the BBA for claims based on their alleged manipulation
of LIBOR in London by alleging that they made “false representations about the
quality of LIBOR [in the United States] in order to reassure the public after
the emergence of reports that LIBOR was being manipulated.” LIBOR IV, 2015 WL
6243526, at *29.
35 The alleged acts rejected in LIBOR VI that moving plaintiffs repackage
as new amendments include: defendants’ sales and trades of LIBOR-based products
to plaintiffs in the United States; defendants’ marketing activities; and
unestablished claims that senior executives at Citibank, JPMorgan, and Barclays
directed the LIBOR manipulation from the United States. 2016 WL 7378980, at
*9-11. We found that none of these acts constituted sufficient contact with
the United States. Id. at *9.
36 While moving plaintiffs also put forth allegations of acts by defendants
that we have not considered before, for reasons explained below, they still
fail to allege plausibly that “any defendant committed an act pursuant to the
pled conspiracy in the United States.” LIBOR VI, 2016 WL 7378980, at *9.
31
“purposeful
plausibly
availment”
alleging
prong
that
of
overt
the
due
acts
in
process
analysis
furtherance
of
by
the
reputation-driven conspiracy occurred in or were aimed at the
United States.
Id. at *8.
In addition, we found that “defendants’
sales and trades of LIBOR-based products to plaintiffs in the
United States are not within the scope of the reputation-motivated
antitrust conspiracy” and could not be considered as overt acts in
furtherance of the conspiracy. 37
Id. at *9.
In other words,
plaintiffs’ allegations of conspiracy jurisdiction must meet two
requirements: 1) defendants’ acts must have constituted sufficient
contact with the relevant forum; and 2) the acts furthered the
conspiracy to project financial soundness.
The Second Circuit effectively adopted these requirements in
Schwab.
The Circuit held that, in order to establish jurisdiction
over a non-forum defendant based on the acts committed by the
defendant’s co-conspirator, plaintiffs must show that “[the] coconspirator’s overt acts in furtherance of the conspiracy had
37
In LIBOR VI, we rejected plaintiffs’ characterization of the conspiracy
as “one with a profit motive” based on the Second Circuit’s opinion in Gelboim,
which stated: “[C]ommon sense dictates that the Banks operated not just as
borrowers but also as lenders in transactions that referenced LIBOR. Banks do
not stockpile money, any more than bakers stockpile yeast. It seems strange
that this or that bank (or any bank) would conspire to gain, as a borrower,
profits that would be offset by a parity of losses it would suffer as a lender.”
Gelboim, 823 F.3d at 783. As we explained, the actual goal of the sufficiently
pled conspiracy – in which Panel Bank defendants participated through the LIBOR
setting process in London – was the “projection of financial soundness.” 2016
WL 7378980, at *7. This was in turn based on our interpretation of the phrase
“increased profits and the projection of financial soundness” in Gelboim, 823
F.3d at 782, as describing “collectively a single, reputation-based motive to
conspire, where increased profits followed from a positive reputation,” LIBOR
VI, 2016 WL 7378980, at *5.
32
sufficient contacts with a state to subject that co-conspirator to
jurisdiction in that state.”
Unspam, 716 F.3d at 329).
Schwab, 883 F.3d at 87 (citing
Thus, overt acts are not themselves
sufficient; rather, it is essential that the acts be in furtherance
of the pled conspiracy.
showing
that
a
See id. (“To allow jurisdiction absent a
co-conspirator’s
minimum
contacts
were
in
furtherance of the conspiracy would be inconsistent with the
‘purposeful
availment’
requirement.”).
Here,
given
that
the
object of the plausibly alleged conspiracy was to project financial
soundness, an act that does not further the reputation-enhancing
object of the conspiracy – such as a defendant’s activities related
to the sale of LIBOR-based instruments that can only further their
“financial
self-interest”
conspiracy jurisdiction.
–
is
not
sufficient
to
establish
See id. (“[T]he conspiracy to manipulate
LIBOR had nothing to do with the California transactions, and there
is thus no reason to impute the California contacts to the coconspirators.”).
In a desperate attempt to establish conspiracy jurisdiction
over defendants with no forum contacts of their own, FFP plaintiffs
try to expand the scope of the pled conspiracy and plead random
acts by defendants that allegedly furthered the conspiracy as
expanded. First, Freddie Mac asserts - directly contrary to Schwab
- that, since “numerous Panel Bank Defendants profited from their
positive
reputation
with
Freddie
33
Mac,”
defendants’
acts
that
facilitated business transactions with Freddie Mac furthered “the
conspiracy’s profit objectives.”
18.
See Freddie Mac’s PJ Mem., at
But as we held in LIBOR VI, though “increased profits followed
from a positive reputation,” defendants’ potential profit motive
was not a part of the sufficiently pled conspiracy. 38
7378980, at *5.
2016 WL
Second, FFP plaintiffs argue that conspiracy
jurisdiction can be established over all defendants for fraud
claims; yet they fail to put forth any plausible allegation that
defendants
conspired
to
commit
fraud. 39
Third,
despite
our
repeated rulings, FFP plaintiffs re-allege the “boycott” theory in
which defendants allegedly fixed the market for benchmark rates.
See, e.g., Principal Financial SAC ¶¶ 288-93.
In LIBOR VI, we
declined, for the second time, to consider the viability of the
“boycott”
theory,
holding
that
38
Gelboim
“did
not
revive
an
For example, Freddie Mac alleges that it authorized its traders to
conduct transactions with only counterparties that were pre-approved by Freddie
Mac’s Counterparty Credit Risk Management group (“CCRM”). Freddie Mac PTAC ¶¶
11-14, 23. The CCRM allegedly calculated each counterparty bank’s perceived
credit risk based on information provided by the banks. Id. As the allegation
only speaks to defendants’ profit motive, we reject Freddie Mac’s assertion
that defendants’ contacts with CCRM plausibly furthered the pled conspiracy.
See Schwab, 883 F.3d at 87 (rejecting the notion that sales-related activities
furthered the conspiracy). Furthermore, there is no causal relationship between
defendants’ alleged contacts and the conspiracy to manipulate LIBOR because
Freddie Mac does not allege that the information provided by defendants in the
pre-approval process included any LIBOR data or was even related to LIBOR. See
id. (holding that Schwab must show a causal relationship between a defendant’s
in-forum contacts (e.g., transactions in California) and the conspiracy).
39 In our view, FFP plaintiffs’ allegation of a fraud-based conspiracy is
merely an end run around this Court’s interpretation of Gelboim that found
defendants’ profit motive to be excluded from the scope of the sufficiently
pled conspiracy to manipulate LIBOR.
In any event, even if FFP plaintiffs
plausibly allege a conspiracy to commit fraud, none of defendants’ acts, as
discussed infra, see Part III.2.4, constitutes sufficient contact with the
United States (and, a fortiori, with plaintiffs’ forum states).
34
alternative theory of antitrust violation.”
2016 WL 7378980, at
*2
filed
n.3.
FFP
plaintiffs
subsequently
motions
for
reconsideration of our decision to reject the theory, which we
denied.
See Mem. & Order, 2017 WL 946338, at *1 (S.D.N.Y. Feb.
16, 2017), ECF No. 1774. In re-alleging the theory, FFP plaintiffs
simply state – incorrectly - that the “boycott” theory is “one
aspect of the much larger persistent suppression conspiracy.”
Pls.’ Joint PJ Br., at 18.
However, since the theory “was
dismissed by this Court and [was] neither before nor addressed by
the Second Circuit [in Gelboim],” we reject for the fourth and
final time FFP plaintiffs’ assertion that personal jurisdiction
can be premised on the “boycott” theory.
Id. at *3.
In sum, all
of these allegations go beyond the scope of the conspiracy that
the Second Circuit and this Court previously defined, we reject
the proposed amendments by FFP plaintiffs.
2.4. “Overt Acts” in Furtherance of the Conspiracy
With our prior rulings, Schwab, and the clearly defined scope
of the plausibly pled conspiracy in mind, we next consider seriatim
each
“overt
act”
that
moving
plaintiffs
allege
defendants
committed in furtherance of the conspiracy.
Directing LIBOR Suppression from the United States
We previously considered and rejected the allegations that
executives at certain defendant banks in the United States directed
LIBOR submitters to suppress their submissions.
35
See LIBOR VI,
2016 WL 7378980, at *11.
Citing “newly discovered” facts, moving
plaintiffs now propose amendments designed to “clarify and/or
supplement the allegations” that were addressed in LIBOR VI. Pls.’
Joint PJ Br., at 27.
The proposed amendments, however, do not
make the allegations concerning conspiracy jurisdiction any more
plausible.
For example, in LIBOR VI, we observed, based on
supporting material submitted by FFP plaintiffs, that Barclays’
former CEO Robert Diamond may have directed BCI Executive Officer
Jerry del Missier to submit low LIBOR rates.
*10 n.17.
2016 WL 7378980, at
Plaintiffs now allege that Mr. Diamond worked from
Barclays’ New York office when he made a phone call to direct Mr.
del Missier to submit low LIBOR rates.
Freddie Mac PTAC ¶ 340.
However, a single telephone call that was allegedly “interpreted”
as an “instruction to artificially suppress” LIBOR submissions at
one bank, see Freddie Mac PTAC ¶ 340, could not have furthered the
conspiracy to project the financial soundness of all Panel Banks.
Without any factual allegation that the conversation took place
between two or more Panel Banks, it is more plausible that the
alleged call furthered only Barclays’ projection of financial
soundness.
Furthermore, Freddie Mac does not allege that Mr.
Diamond was in fact in New York when he made the call; rather, it
alleges that he “worked out of Barclays’ New York offices” during
the alleged LIBOR suppression period.
Without any allegation that
Mr. Diamond physically made the call from his New York office, we
36
cannot draw an argumentative inference in Freddie Mac’s favor even
if it was relevant.
Other
See Overseas Military, 21 F.3d at 507.
amendments
based
on
newly
communications do not fare any better.
discovered
intrabank
Moving plaintiffs assert
that the communications show how executives at several defendant
banks in New York allegedly directed their own LIBOR submitters to
submit artificially suppressed submissions.
Mac PTAC 269, 274-79, 293, 316, 338.
matter,
the
communications
communications
levels.” 40
regarding
are
the
See, e.g., Freddie
However, as a substantive
“nothing
executive’s
more
than
thoughts
intrabank
on
LIBOR
LIBOR VI, 2016 WL 7378980, at *11; see also LIBOR IV,
2015 WL 6243526, at *60 (such communications do not “purport[ ] to
do anything more than to state a sincere opinion based on publicly
available information”).
In sum, none of plaintiffs’ allegations
makes a prima facie showing of acts on the part of defendants,
within the United States, and in furtherance of the conspiracy.
Transmission of Individual LIBOR Submissions to Plaintiffs
We have previously considered and rejected the assertion that
defendants’ alleged transmissions of individual LIBOR submissions
and daily LIBOR rates to the United States established personal
40
Plaintiffs also discuss an email exchange between Scott Bere, Citibank’s
Head of Risk Treasury, and John Porter, Barclays Capital’s Global Head of
Portfolio and Liquidity Management. In the email, Mr. Bere allegedly told Mr.
Porter to examine Barclays’ LIBOR submissions because they “appear to be high.”
Freddie Mac PTAC ¶ 274. No reasonable person would see this email communication
as an indication that either Mr. Bere or Mr. Porter directed anyone to submit
false LIBOR submissions from the United States.
37
jurisdiction over defendants in the United States.
See LIBOR IV,
2015 WL 6243526, at *29-30 (rejecting the argument that defendants’
transmissions
of
LIBOR
rates
to
plaintiffs
established
jurisdiction); LIBOR VI, 2016 WL 7378980, at *10 (rejecting the
allegation
that
defendants
transmitted
their
individual
LIBOR
submissions from the United States to Thomson Reuters in New York).
Freddie Mac’s allegation that defendants published LIBOR data via
several data vendors, see Freddie Mac PTAC ¶ 239, is substantially
identical to those previous assertions and is thus rejected.
Freddie Mac also alleges that Bank of America directly sent
its LIBOR submissions to Freddie Mac.
arguendo
that
Bank
of
America’s
Id. ¶ 239.
act
Even assuming
constituted
contacts
sufficient to establish jurisdiction in the United States, 41 the
conduct did not further the conspiracy.
After calculating the
LIBOR rate, every Panel Bank’s submission was published.
935 F. Supp. 2d at 679.
LIBOR I,
“Therefore, it is a matter of public
knowledge . . . what quote each bank submitted and how the final
fix was calculated.”
Id.
Thus, even assuming that, in addition
to daily worldwide publication, Bank of America sent their own
LIBOR quotes to Freddie Mac, the transmissions could not have
furthered the conspiracy to project the financial soundness of all
Panel Banks.
At best, the transmissions helped with Bank of
41
In LIBOR VI, we found personal jurisdiction over the FDIC’s antitrust
claims against the Bank of America entities, so this issue is academic.
38
America’s
solicitation
of
business,
and
such
sales-related
activities do not further the alleged conspiracy.
Acts of “False Assurance”
As a threshold matter, we reject FFP plaintiffs’ attempt to
cast the BBA as a member of the plausibly pled conspiracy and
thereby reject their efforts to rely on the BBA’s acts in the
United States for jurisdictional purposes.
Even FFP plaintiffs
point out that the BBA’s incentive was “to portray LIBOR as a
reliable benchmark, to appease its constituent members and to
profit from the licensing of LIBOR,” Pls.’ Joint PJ Br., at 21.
Thus, the BBA is not a financial institution whose main concern is
to project financial soundness, and any act of assurance that the
BBA allegedly took did not further the alleged conspiracy. 42
With respect to other defendants that arguably fall within
the scope of the pled conspiracy, there is no question that an act
of concealment can constitute an overt act in furtherance of the
conspiracy.
See, e.g., United States v. Grant, 683 F.3d 639, 648-
49 (5th Cir. 2012) (“[E]fforts to conceal an ongoing conspiracy
obviously
can
further
the
conspiracy
by
assuring
that
the
conspirators will not be revealed and the conspiracy brought to an
end.”); Grunewald v. United States, 353 U.S. 391, 405 (1957)
(holding that an act of concealment occurring after the conspiracy
42
This ruling is separate from the issue of whether, in the context of
inquiry notice, a plaintiff reasonably relied on the BBA’s statements about the
accuracy of LIBOR. See Schwab, 883 F.3d at 96-98.
39
ended
could
still
be
seen
as
furthering
the
conspiracy
if
prosecutors could prove the existence of an express original
agreement to conceal the conspiracy).
In their proposed amended
complaints, plaintiffs assert that defendants’ publications and
statements about the quality of LIBOR – and their transmission of
the publications directly to plaintiffs – served to conceal the
conspiracy
defendants.
and,
consequently,
establish
jurisdiction
over
all
See, e.g., Freddie Mac PTAC ¶¶ 119, 132, 160, 193,
320, 406; Principal Financial PSAC ¶¶ 263, 265-67.
However, moving plaintiffs do not plausibly demonstrate how
the acts could have provided false assurance or furthered the
conspiracy.
For
example,
Freddie
Mac
alleges
that
several
defendants published and distributed in the United States general
reports on “global or U.S. Fixed Income Strategy, which included
analyses on” LIBOR, e.g., Freddie Mac PTAC ¶¶ 33, 61, 70, 95, 119,
132, 160, but Freddie Mac does not identify anything in the reports
that serves as, or can even be interpreted as, false assurance
about the quality of LIBOR.
“for
the
purpose
transactions.”
of
In fact, the reports were designed
soliciting
and
engaging
in
financial
E.g., Freddie Mac PTAC ¶¶ 70, 80, 89, 101, 118,
131, 146, 169, 192.
Thus, the reports furthered the financial
self-interest of the individual banks who published them, and they
did not further a conspiracy to project financial soundness for
sixteen Panel Banks.
See Schwab, 883 F.3d at 87.
40
Moreover, applying the Supreme Court’s analysis in Calder v.
Jones, 465 U.S. 783 (1984), we find that none of the “false
assurance” acts constituted sufficient contact with the United
States.
In Calder, the Supreme Court considered a libel suit in
California
jurisdiction
state
over
court
two
that
sought
defendants
to
who
establish
worked
newspaper company headquartered in Florida.
for
specific
a
national
Id. at 784-86.
The
plaintiff’s libel claims were based on a newspaper article written
and edited by the defendants in Florida that was subsequently
distributed in California and the rest of the country.
Court
examined
the
various
contacts
the
Id.
defendants
had
The
with
California (as opposed to the contacts the defendants had with the
plaintiff) and found those forum contacts to be sufficient: “The
defendants relied on phone calls to ‘California sources’ for the
information in their article; they wrote the story about the
plaintiff’s activities in California; they caused reputational
injury in California by writing an allegedly libelous article that
was widely circulated in the State; and the ‘brunt’ of that injury
was suffered by the plaintiff in that State.”
287.
The
injury
caused
by
the
news
Walden, 571 U.S. at
article
in
California
“connected the defendants’ conduct to California, not just to a
plaintiff who lived there.”
Id.
Therefore, California was “the
focal point both of the story and of the harm suffered.”
41
Calder,
465 U.S. at 789.
Jurisdiction was proper “based on the ‘effects’
of their Florida conduct in California.”
Id.
Unlike the defendants’ acts in Calder, none of the acts in
the instant case were specifically targeted at causing injury in
the United States.
For example, Freddie Mac alleges that JPMorgan
published a research note in response to the May 29, 2018 article
that
questioned
submissions.
the
accuracy
of
several
Freddie Mac PTAC ¶ 317, 406.
defendants’
LIBOR
There is no allegation
that the note, which criticized the research methodology used by
the article, was specifically published for or targeted at Freddie
Mac or the United States.
Rather, the note was distributed to
subscribers of the Bloomberg Terminal, see id. ¶ 406 n.457, “which
sits on the desk of more than 300,000 of the ‘world’s most
influential decision makers,’” id. ¶ 64 n.38.
In other words, the
note ended up in the hands of investors throughout the world.
JPMorgan’s
act
thus
mirrors
the
words
of
Henry
Wadsworth
Longfellow: “I shot an arrow into the air; It fell to earth, I
knew not where; For, as swiftly it flew, the sight; Could not
follow it in its flight.”
By Freddie Mac’s logic, JPMorgan would
be subject to “de facto universal jurisdiction” throughout the
world.
Advanced
Tactical
Ordnance
Sys.,
LLC
v.
Real
Action
Paintball, Inc., 751 F.3d 796, 801 (7th Cir. 2014).
In sum, moving plaintiffs fail to show that defendants’ acts
furthered the pled conspiracy or had sufficient contacts with the
42
United States.
Thus, we need not address whether the exercise of
jurisdiction would comport with traditional notions of fair play
and substantial justice.
We also need not reach defendants’
argument regarding lack of venue under the Clayton Act. 43
3.
Other Amendments
In this section, we address plaintiffs’ amendments that are
not related to personal jurisdiction.
We conclude that almost all
of the amendments do not comport with the dictates of Schwab and
are thus futile.
We consider each amendment seriatim.
3.1. Lender Plaintiffs’ Proposed Amendments
In
LIBOR
V,
we
dismissed
the
fraud
claims
asserted
by
Government Development Bank for Puerto Rico (“GDB”) as time-barred
because the bank was on inquiry notice of the basis for all of its
claims by May 31, 2010, but failed to assert them until November
21, 2012.
2015 WL 6696407, at *12-13.
We assumed without deciding
that Puerto Rico would apply the “weak inquiry notice” rule because
GDB’s claims were time-barred even under that plaintiff-friendly
rule.
Id.
However, we now find that Puerto Rico has a “strong
inquiry notice” rule, under which the statute of limitations begins
to run on the inquiry notice date.
See infra Part IV.5.1.
Therefore, GDB’s claims expired on May 31, 2011.
After Schwab,
43 We explicitly note that, even if the BBA were a member of the conspiracy,
it is not subject to the Clayton Act’s venue provision because the BBA is not
“a corporation” as defined by the Act. See 15 U.S.C. § 22; World Skating Fed’n
v. Int’l Skating Union, 357 F. Supp. 2d 661, 664 (S.D.N.Y. 2005).
43
Lender plaintiffs concurrently filed a motion for leave to amend,
see ECF No. 2552, and a pre-motion letter seeking leave to move
for reconsideration of LIBOR V, see ECF No. 2555.
that,
by
reversing
enrichment
our
claims
under
partial
dismissal
California
law,
of
They argued
Schwab’s
Schwab
unjust
changed
the
controlling law of this case and thereby reinstated GDB’s fraud
claims.
Mem. Law in Supp. of GDB Mot. Leave to Amend (“Lender
Pls.’ Br.”), at 9, ECF No. 2572.
Failing to recognize the
variations in state law, Lender plaintiffs requested that we
reconsider our analysis of Puerto Rico law in light of the Second
Circuit’s decision. 44
See Mem. & Order, 2018 WL 3222518, at *1
(S.D.N.Y. Jul. 2, 2018), ECF No. 2607 (“July 2, 2018 Order”).
We
denied
reconsideration
Lender
in
July
plaintiffs’
2018,
and
we
request
see
no
to
move
reason
to
for
rule
otherwise on their duplicative motion for leave to amend. In their
motion, Lender plaintiffs argue that Puerto Rico recognizes a
“defendant reassurance” exception, see Reply to Defs.’ Opp. to
Pls.’ Mots. Leave to Amend Compls. (“Pls.’ Joint Non-PJ Br.”), at
22, ECF No. 2666, even though we held in the July 2, 2018 Order
that our analysis would not change even if the exception applied. 45
44
Lender plaintiffs’ utter failure to grasp state law variations is
evidenced in their pre-motion letter.
Lender plaintiffs did not “consider,
address, or even cite any Puerto Rico law in contending that we should reconsider
our prior analysis of Puerto Rico law.” July 2, 2018 Order, 2018 WL 3222518,
at *1.
45 We now explicitly hold that the “defendant reassurance” exception does
not apply to GDB’s claims because Lender plaintiffs do not allege that GDB
conducted reasonable due diligence to discover fraudulently concealed material
44
2018 WL 3222518, at *2.
In view of the foregoing, and because
there is no question that GDB’s claims were filed after the statute
of limitations had run, Lender plaintiffs’ motion is denied.
3.2. NCUA’s Proposed Amendments
The NCUA moves to add amendments detailing its LIBOR-based
transactions in asset-backed securities. 46
See NCUA PSAC ¶¶ 235-
236, 239-240, 243-244, 247-251, 254. Whether the NCUA has standing
to bring antitrust claims as a beneficiary of the trusts is
discussed
in
our
consideration
of
FFP
plaintiffs’
amendments regarding asset-backed securities.
proposed
To the extent that
the NCUA bases its antitrust claims on transactions with nondefendant third parties, we reject the amendments based on our
ruling in LIBOR VI.
See 2016 WL 7378980, at *16.
3.3. FFP Plaintiffs’ Proposed Amendments 47
FFP Plaintiffs’ Attempt to Expand the Suppression Period
FFP
plaintiffs
seek
to
extend
the
end
of
the
alleged
suppression period from May 2010 to October 2011 based on the
indictment of two former employees of Société Générale and the
facts after it had been put on inquiry notice in May 2010. See, e.g., Maurás
v. Banco Popular De Puerto Rico, Inc., No. 16-2864 (BJM), 2017 WL 5158677, at
*6 (D.P.R. Nov. 7, 2017); Garcia Colon v. Garcia Rinaldi, 340 F. Supp. 2d 113,
121-22 (D.P.R. 2004).
46 The NCUA claims that it engaged in 2,237 transactions involving assetbacked securities (“ABS”). See Letter from Andrew Shen to the Court, Feb. 1,
2019, ECF No. 2790. 2,033 of those transactions involved residential mortgagebacked securities, and the rest of the transactions (except for two that
involved corporate bonds) involved assets such as aircrafts, automobiles,
commercial mortgages, credit card debt, and student loan collateral. Id.
47 We do not consider Freddie Mac’s request to add Barclays Capital as a
defendant because it withdrew the request. See Pls.’ Joint Non-PJ Br., at 17
n.23.
45
bank’s recent settlements with U.S. regulators.
PSAC ¶ 1; Freddie Mac PTAC ¶ 7.
See, e.g., FDIC
We have previously considered the
implications of the indictment for this MDL when the Direct Action
plaintiffs (“DAP”), which include FFP plaintiffs, filed a motion
to defer their deadline to move for reconsideration in light of
the indictment until after the Second Circuit ruled on the appeals
from LIBOR IV and LIBOR VI.
See Letter from James Martin to the
Court, Sep. 14, 2017, ECF No. 2263.
We denied the motion because
the indictment “does not contain any previously unknown facts of
relevance” and “does [not] alter the factual and legal bases
underlying this Court’s prior decisions.”
Sep. 26, 2017 Order,
ECF No. 2289.
We reject FFP plaintiffs’ proposed amendments for the same
reasons.
an
The settlements 48 contain no allegation or finding that
inter-bank
persistent
suppression
conspiracy
existed.
In
addition, there is no suggestion that false LIBOR submissions were
submitted from or directed by individuals in the United States.
The assertion that the internal documents allegedly show “all Panel
Bank Defendants manipulated their submissions,” see, e.g., FDIC
PSAC ¶ 306, does not find any support in the documents themselves.
Since we deny FFP plaintiffs’ attempt to expand the relevant time
48 The settlements include the bank’s deferred prosecution agreement with
the U.S. Department of Justice, see Deferred Prosecution Agreement, United
States v. Société Générale S.A., No. 18-cr-253 (E.D.N.Y. Jun. 5, 2018), and the
bank’s settlement with the Commodity Futures Trading Commission, see Order, In
the Matter of Société Générale S.A., CFTC No. 18-14 (June 4, 2018).
46
period, we do not address defendants’ arguments to dismiss claims
that are premised on the new conduct period as untimely. 49
Standing to Bring Claims Premised on Asset-Backed Securities
Like the NCUA, FFP plaintiffs move to add amendments detailing
their transactions of LIBOR-based ABS.
See, e.g., Freddie Mac
PTAC ¶¶ 56, 85, 94, 122, 140, 177; FDIC PSAC ¶¶ 68, 89; Principal
Financial PSAC ¶¶ 31, 46, 230-39.
In LIBOR IV, we found that,
“[w]hen an investor holds an asset-backed security, the investor
actually holds a certificate as evidence that the investor is
entitled to certain disbursements as beneficiary of a trust.” 2014
WL 6243526, at *84.
Furthermore, the trust “has legal personality
and acts through its trustee, who (at least following a default)
is a fiduciary for the investors collectively.”
Id.
Therefore,
the NCUA and FFP plaintiffs must show that they are proper parties
to
maintain
counterparties.
contract-related
claims
against
the
trust’s
Id. at *85.
Defendants argue that individual certificate holders cannot
bring claims related to the certificate holders’ investments in
ABS because of “no-action” clauses that are typically found in
Pooling and Servicing Agreements (“PSAs”).
49
See Defs.’ Joint Non-
In their effort to overcome the statute of limitations bar, FFP
plaintiffs grossly misinterpret the Circuit’s ruling when they state: “The
Second Circuit held that, even if California law were no different than other
jurisdictions, Schwab could plausibly have relied on the BBA’s false
assurances.” Pls.’ Joint Non-PJ Br., at 9 (emphasis added). Nowhere in Schwab
does the Circuit suggest that the BBA’s false assurances could have resulted in
a finding of justifiable reliance in any other state besides California.
47
PJ Br., at 15; see also Letter from Paul S. Mishkin to the Court,
Feb. 19, 2019, ECF No. 2808.
But defendants rely on inapposite
case law discussing how certificate holders cannot bring breach of
representation and warranty claims; plaintiffs’ claims, of course,
sound in antitrust and fraud. See, e.g., Deutsche Bank Nat’l Trust
Co. v. Quicken Loans Inc., 810 F.3d 861, 868 n.8 (2d Cir. 2015).
Plaintiffs, for their part, assert that “no-action” clauses do not
“extend to a security holder’s common law and statutory claims.”
Letter from James Martin to the Court, Feb. 4, 2019, ECF No. 2791.
As the legal authorities on which plaintiffs rely make clear,
the legal effect of a “no-action” clause depends on a fact-specific
inquiry into the language of the particular “no-action” clause at
issue.
See Quadrant Structured Prod. Co. v. Vertin, 23 N.Y.3d
549, 564-65 (2014) (discussing cases in which federal courts
analyze different “no-action” clauses and finding that the scope
of legal claims that security holders are allowed to bring depends
on the language of each “no-action” clause).
We cannot determine whether the NCUA and FFP plaintiffs can
bring antitrust and fraud claims without reviewing the “no-action”
clauses contained in the PSAs of the asset-backed securities they
purchased.
Therefore, we direct the NCUA and FFP plaintiffs to
include representative samples of the “no-action” clauses in their
amended complaints.
Defendants will then have an opportunity, if
appropriate, to move for dismissal of plaintiffs’ claims.
48
Principal’s Amendments That Add Details of Swap Transactions
Principal moves to add more details regarding their swap
transactions with defendants.
To the extent that Principal is
simply providing more information about the transactions, we allow
their
amendments
because
we
do
not
find
that
the
amendments
prejudice defendants in any way.
See Pasternack v. Shrader, 863
F.3d 162, 174 (2d Cir. 2017).
However, to the extent that
Principal is adding more details to reassert claims that we have
previously dismissed, we reject the proposed amendments.
See,
e.g., Mem. & Order, 2016 WL 4773129, at *9 (S.D.N.Y. Sep. 12, 2016)
(dismissing
Principal’s
fraud
and
negligent
misrepresentation
claims against Credit Suisse International, Chase Bank USA, and
Royal Bank of Scotland because Principal failed to allege swap
agreements during the alleged suppression period).
FDIC’s Amendments Related to Previously Dismissed Claims
Finally,
the
FDIC
reasserts
dismissed by the Court in LIBOR IV.
claims 50
that
were
already
At oral argument, the FDIC
confirmed that it had included the dismissed claims in the proposed
amended complaint for the sole purpose of preserving them for
appeal, rendering it unnecessary to discuss them further.
50
Defendants stated that the FDIC reasserts “claims for tortious
interference with prospective economic advantage, breach of contract, and
negligent misrepresentation.” Joint Mem. Law in Supp. Defs.’ Opp. Pls.’ Mots.
for Leave to Amend (“Defs.’ Joint Non-PJ Br.”), at 6, ECF No. 2625.
49
IV.
Defendants’ Motion to Dismiss Against Schwab and Doral
Defendants move for partial dismissal of Schwab’s and Doral’s
complaints for lack of personal jurisdiction 51 and for failure to
state a claim.
Since the same standards of review are used to
evaluate motions for leave to amend and motions to dismiss, our
jurisdictional analyses in the previous section also apply to
Schwab’s and Doral’s claims; indeed, some of the jurisdictional
issues presented in the motions for leave to amend appear in both
Schwab’s and Doral’s complaints.
This is especially true for
Doral, whose complaint is substantially similar to the FDIC’s
proposed second amended complaint.
1.
General Legal Standard for Motion to Dismiss
As we have already described the general standards applicable
to motions to dismiss in the context of evaluating the motions for
leave to amend, see supra Part III.1, we discuss only the standards
that are specific to the instant motions.
When deciding a motion to dismiss for failure to state a claim
under Rule 12(b)(6), we must accept as true all factual allegations
in
the
complaint
plaintiff’s favor.
2009).
and
draw
all
reasonable
inferences
in
the
Harris v. Mills, 572 F.3d 66, 71 (2d Cir.
Nevertheless, the plaintiff’s “[f]actual allegations must
51 Defendants also move to dismiss Doral’s antitrust claims against certain
defendants for improper venue under Rule 12(b)(3). Since we find that the FDIC
fails to establish conspiracy jurisdiction, see supra Part III.2.4, we need not
reach defendants’ argument regarding lack of venue under the Clayton Act.
50
be enough to raise a right to relief above the speculative level.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
The well-
pleaded allegations must show “more than a sheer possibility that
a defendant has acted unlawfully” to pass muster.
Iqbal, 556 U.S. 662, 678 (2009).
Ashcroft v.
If the plaintiff has “not nudged
[its] claims across the line from conceivable to plausible, [the]
complaint must be dismissed.”
Twombly, 550 U.S. at 570.
When a defendant in a federal securities claim brought under
the Exchange Act challenges the exercise of personal jurisdiction,
the challenge “must be tested against due process standards.”
S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir. 1990).
The
due process test has two related components: the “minimum contacts”
inquiry and the “reasonableness” inquiry.
Metro. Life Ins. Co. v.
Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996).
When
conducting a “minimum contacts” inquiry in a federal securities
action, a court looks at the defendant’s contacts with the entire
United States.
S.E.C. v. Straub, 921 F. Supp. 2d 244, 253
(S.D.N.Y. 2013).
If sufficient contacts are found, the court may
exercise jurisdiction so long as “it is reasonable [to do so] under
the circumstances of the particular case.” 52
52
Id.
However, the “reasonableness” inquiry rarely defeats jurisdiction where
a defendant has sufficient contact with the forum. See Asahi Metal Indus. Co.
v. Super. Ct. of Cal., Solano Cty., 480 U.S. 102, 116 (1987) (Brennan, J.,
concurring) (noting that only in “rare cases” will the inquiry defeat
jurisdiction). In addition, the inquiry is “largely academic in non-diversity
cases brought under a federal law which provides for nationwide service of
process.” S.E.C. v. Softpoint, Inc., No. 95-cv-2951 (GEL), 2001 WL 43611, at *5
(S.D.N.Y. Jan. 18, 2001).
51
2.
Motion to Dismiss Schwab’s Claims Based on Lack of
Personal Jurisdiction
Schwab asserts federal securities claims premised on its
purchase of floating-rate notes. 53
Specifically, Schwab asserts:
(1) claims under Section 10(b) of the Securities Exchange Act of
1934 54 and SEC Rule 10b-5 55 (“10(b) claims”) against Counterparty
defendants who issued and/or sold floating-rate notes to Schwab,
see Schwab SAC ¶¶ 186-87; (2) 10(b) claims against Non-Counterparty
defendants based on their false LIBOR submissions, see id. ¶ 185;
and (3) claims under Section 20(a) of the Exchange Act 56 (“20(a)
claims”) against the parent entities of 10(b) defendants through
a control person theory, id. ¶ 195.
Under California law, Schwab
asserts: (1) fraud claims and breach of the implied covenant of
good faith and fair dealing claims against Counterparty defendants
who
issued
enrichment
floating-rate
claims
against
notes,
id.
¶¶
Counterparty
200,
204;
(2)
unjust
defendants
who
issued
floating-rate or fixed-rate notes, id. ¶¶ 206-209; (3) fraud (and
aiding
and
abetting
fraud)
claims
against
Non-Counterparty
defendants based on their false LIBOR submissions, 57 id. ¶ 201; and
53 Schwab no longer asserts its federal securities claims concerning fixedrate notes in light of the Second Circuit’s affirmance of our decision to
dismiss the claims. See Schwab, 883 F.3d at 95-96.
54 § 10(b), 15 U.S.C. § 78j(b) (2012).
55 17 C.F.R. § 240.10b–5 (2014).
56 § 20(a), 15 U.S.C. § 78t(a) (2012).
57 In light of our ruling that “a plaintiff may not sue its own counterparty
for fraud on the basis of false LIBOR submissions,” LIBOR IV, 2015 WL 6243526,
at *62 n.92, Schwab “limits these claims to its purchases of floating-rate notes
issued by Bank Affiliates, Parent Company Defendants, or non-Defendants.”
Schwab SAC ¶ 201.
52
(4) tortious interference claims against certain Non-Counterparty
defendants whose affiliates issued floating-rate notes, id. ¶¶
210-212. 58
Schwab argues that we should exercise personal jurisdiction
over defendants for all of its claims.
While we previously
considered whether personal jurisdiction could be established over
defendants in Schwab’s state law claims, we had no occasion to
make specific rulings on jurisdiction in the context of the federal
securities laws.
However, a number of our earlier jurisdictional
rulings are applicable to Schwab’s federal securities claims.
In LIBOR IV, we found that personal jurisdiction could be
established over a defendant for a claim arising from a federal
statute with a nationwide service of process provision, such as
the Exchange Act, if the defendant had sufficient contacts with
the United States.
2015 WL 6243526, at *23.
For Counterparty
defendants who issued bonds, we upheld jurisdiction “where the
bond was issued,” or more specifically, “where the bond was placed
with an underwriter or agent for sale or marketing.”
Id. at *37.
We also upheld jurisdiction where Counterparty defendants directly
solicited and sold LIBOR-linked financial instruments.
March 31,
2016 Order, 2016 WL 1301175, at *4; see also Schwab, 883 F.3d at
83.
But entities that were merely involved in the sale of LIBOR-
58
Schwab also asserts that, under the theory of civil conspiracy, each
defendant “is being sued both individually as a primary violator of the law .
. . and as a co-conspirator as provided for under state law.” Schwab SAC ¶ 217.
53
based financial instruments - such as brokers, dealers, and agents
- had no duty to disclose the alleged manipulation of LIBOR and
could
not
be
held
liable
for
issuing
defendants’
failure
to
disclose the alleged manipulation.
See LIBOR IV, WL 6243526, at
*75.
in
Synthesizing
those
rulings
the
context
of
Schwab’s
Exchange Act claims, we can exercise personal jurisdiction over a
Counterparty defendant who had sufficient contacts with the United
States by issuing notes in the United States or placing them with
a U.S.-based agent for sale. 59
We have repeatedly found that, unless there is a plausible
allegation that LIBOR submissions were made in the United States,
we would exercise personal jurisdiction only over Counterparty
defendants who: (1) transacted directly with plaintiffs by issuing
LIBOR-based instruments and/or engaging in a “course of dealing”
in
the
relevant
forums;
or
(2)
transacted
indirectly
plaintiffs through their subsidiaries or affiliates.
Part III.2.
with
See supra
As defendants argue in their briefs, Schwab attempts
to broaden the jurisdictional scope of its claims to include NonCounterparty defendants in spite of our prior rulings and the
Second Circuit’s affirmance of those rulings.
For the reasons
stated below, we reject Schwab’s assertion that we should exercise
personal jurisdiction over Non-Counterparty defendants.
59
This exercise of jurisdiction is in line with the Supreme Court’s ruling
in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), that a private
cause of action under § 10(b) is limited to purchasers or sellers of securities.
54
2.1. Nationwide General Jurisdiction Based on the
Exchange Act’s Nationwide Service of Process
Under a novel theory of nationwide general jurisdiction,
Schwab asserts that the nationwide service of process provision of
the Exchange Act establishes federal general jurisdiction over all
defendants who are domiciled in the United States. 60
See Schwab’s
Opp’n to Defs.’ Mot. Dismiss (“Schwab Br.”), at 11-13, ECF No.
2668.
Schwab argues that a defendant’s residency in the United
States creates “minimal contacts” with the United States and can
justify the federal government’s exercise of general jurisdiction.
See id. at 11 (quoting Mariash v. Morrill, 496 F.2d 1138, 1143 (2d
Cir.
1974)).
In
response,
defendants
contend
that
Schwab
“improperly conflates” the analysis for general jurisdiction in a
specific state with the sufficiency of a defendant’s residency in
the
United
States
for
purposes
of
establishing
jurisdiction in federal securities claims.
specific
See Defs.’ Joint PJ
Br., at 46.
We agree with defendants.
In LIBOR IV, we held that, in
evaluating the existence of personal jurisdiction for federal
claims arising from statutes with nationwide service of process
provisions, we would make a “minimum contacts” inquiry and examine
a defendant’s suit-related contact with the entire United States,
60 They include: (1) Bank of America, N.A., Citibank, N.A., and JP Morgan
Chase Bank, N.A., who Schwab refers to as “Domestic Panel Bank” defendants; and
(2) Bank of America Corp., Citigroup Inc., and JP Morgan Chase & Co., who Schwab
refers to as “Domestic Parent Company” defendants. See Schwab SAC ¶ 220.
55
rather than just the forum state.
See 2015 WL 6243526, at *23.
We also held that, under the Supreme Court’s rulings in Daimler
and Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915
(2011), we would examine a defendant’s “continuous and systematic”
contacts with the forum state in evaluating general jurisdiction
in that state.
Id. at *25-27; see also Metro. Life, 84 F.3d at
568 (“Because general jurisdiction is not related to the events
giving rise to the suit, courts impose a more stringent minimum
contacts
test,
requiring
the
plaintiff
to
demonstrate
the
defendant’s continuous and systematic general business contacts.”
(internal citation omitted)).
Therefore, “[g]eneral jurisdiction
and specific jurisdiction require different legal analyses . . .
and the question of minimum contacts only applies in a specific
jurisdiction analysis.”
Mem. & Order, 2017 WL 532465, at *1
(S.D.N.Y. Feb. 2, 2017), ECF No. 1761.
At oral argument, Schwab argued that, applying a theory of
federal general jurisdiction predicated on the Exchange Act’s
nationwide service of process provision, this Court could exercise
jurisdiction
claims.
over
Non-Counterparty
See Tr. 4:12-18.
defendants
for
state
law
According to Schwab, finding federal
general jurisdiction based on a defendant’s U.S. residency has
been “Second Circuit law for about 45 years” since the Circuit’s
decision in Mariash, 496 F.2d 1138.
misinterprets Mariash.
Id.
But Schwab grossly
In that case, the Circuit considered
56
whether a defendant’s residency in the United States was sufficient
to establish personal jurisdiction over the defendant for claims
brought under the Exchange Act.
Although the Mariash court did
not explicitly state whether that jurisdiction was specific or
general,
its
analysis
of
the
defendant’s
“minimal
contacts”
indicates that specific jurisdiction was at issue.
See 496 F.2d
at
whether
1143.
In
defendant’s
contacts”
other
residency
that
would
words,
in
the
the
allow
Circuit
United
specific
examined
States
created
jurisdiction
the
“minimal
over
the
defendant for an Exchange Act claim.
Schwab also points to Porina v. Marward Shipping Co., 521
F.3d 122 (2d Cir. 2008), in which the Circuit considered the
question of whether a foreign defendant’s contacts with the United
States were sufficiently “continuous and systematic” to establish
nationwide general jurisdiction.
The defendant in Porina had
insufficient contacts with any specific state, so the plaintiffs
relied on Rule 4(k)(2), which allows a federal court to exercise
personal
jurisdiction
when
the
defendant
is
not
“subject
to
jurisdiction in any state’s courts of general jurisdiction.” 61
Fed. R. Civ. P. 4(k)(2)(A).
This rule was “specifically designed
61 Rule 4(k)(2) allows a federal court to exercise personal jurisdiction
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, 521 F.3d at 127 (internal
quotation marks omitted).
57
to
‘correct[]
a
gap’
international cases,”
in
the
enforcement
of
federal
law
in
Porina, 521 F.3d at 126 (alternation in
original) (quoting Fed. R. Civ. P. 4 advisory committee’s note,
1993 Amendments), which “arose from the general rule that a federal
district court’s personal jurisdiction extends only as far as that
of a state court in the state where the federal court sits,” id.
Consequently, a federal court could not exercise jurisdiction over
a foreign defendant that had sufficient contact with the United
States but not with any single state. Thus, the Circuit’s analysis
of the foreign defendant’s “continuous and systematic general
business contacts” with the United States in Porina has no bearing
on Schwab’s argument because Schwab cannot rely on Rule 4(k)(2):
defendants over which Schwab attempts to establish nationwide
general jurisdiction are domestic entities who are subject to
general jurisdiction in their home states.
Other cases on which Schwab relies do not support its novel
theory.
Rather, the cases answer affirmatively the question of
whether a defendant in a federal securities lawsuit could be
subject to specific jurisdiction in any federal court based on the
defendant’s U.S. residency. 62
See, e.g., Moon Joo Yu v. Premiere
Power LLC, No. 14-cv-7588 (KPF), 2015 WL 4629495, at *5 (S.D.N.Y.
62 None of the cases even mentions general jurisdiction or engages in an
analysis of whether a defendant’s contacts with the United States are
sufficiently “continuous and systematic” to subject them to general
jurisdiction.
58
Aug. 4, 2015) (holding that a New York federal court could exercise
jurisdiction over a defendant for Exchange Act claims even though
the defendant was a resident of Oklahoma).
For these reasons, we reject Schwab’s attempt to establish
jurisdiction over Non-Counterparty defendants under the theory of
nationwide general jurisdiction.
2.2. Specific Jurisdiction over Defendants in Exchange
Act Claims
Schwab
plausibly
alleges
that
Floating-Rate
Issuer
defendants 63 had sufficient contacts with the United States by
issuing notes in the United States or placing them with U.S.-based
agents
for
sale.
See
Schwab
SAC
¶¶
162-65,
168,
224-28.
Therefore, consistent with our prior rulings, we exercise specific
jurisdiction over Floating-Rate Issuer defendants. 64
However,
for
some
notes
that
were
issued
by
foreign
defendants, Schwab does not sufficiently allege that they were
63 Schwab brings various claims against defendants who issued floatingrate notes and refers to these defendants as “Floating-Rate Issuer Defendants”
in its complaint. We adopt Schwab’s labeling, which includes domestic banks
(Bank of America, Citigroup Inc., JPMorgan Chase Bank, and JPMorgan Chase &
Co.) and foreign banks (Barclays Bank plc, Credit Suisse AG, Deutsche Bank AG,
Rabobank, Royal Bank of Canada, The Royal Bank of Scotland plc, and UBS AG).
64 According to defendants, Schwab fails to plausibly allege personal
jurisdiction based on the place of issuance because Schwab does not identify
the exact location within the United States where notes were issued.
Joint
Reply Mem. of Law in Further Support of Defs.’ Mot. Dismiss for Lack of Personal
Jurisdiction and Venue (“Defs.’ Joint MTD PJ Reply”), ECF No. 2701, at 12-13.
However, in evaluating whether we can exercise personal jurisdiction over a
defendant in a federal securities claim, we examine the defendant’s contact
with the entire United States. Therefore, Schwab does not need to allege the
exact locations in which defendants issued their notes; rather, Schwab only
needs to allege that defendants issued floating-rate notes in the United States
or placed them with U.S.-based agents for sale.
59
issued or placed with an agent for sale in the United States.
See,
e.g., id. at ¶ 163 n.187 & n.188 (noting that transactions numbered
FL925-26 do not have agent information).
Schwab argues that any
ambiguity as to whether the seller was located in the United States
should be resolved in its favor at the pleading stage. 65
But we
may not “draw argumentative inferences in the plaintiff’s favor.”
Overseas Military Sales, 21 F.3d at 507 (internal quotation marks
omitted).
Without any specific allegation about the identity or
location of the defendant’s agent, we cannot draw the requested
inferences in Schwab’s favor, especially since Schwab has had more
than seven years to review its transaction data.
Schwab contends that, even if the selling agent information
is missing, we can still exercise jurisdiction over defendants for
Exchange Act claims that are premised on the notes at issue because
foreign Floating-Rate Issuer defendants delivered the notes “into
the stream of commerce with the expectation that they would be
purchased by investors in the United States.” 66
Schwab Br., at 15
(quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298
(1990)).
However, floating-rate notes “may arrive in the hands of
plaintiffs
and
other
investors
65
anywhere
in
the
world
by
the
At oral argument, Schwab stated that “many [notes] were purchased at
issuance by the Schwab investment people in San Francisco” in the primary
market. Tr. 7:19-25. Since Schwab cannot represent that it purchased all of
its notes at issuance, we cannot reasonably infer that the notes without
adequate seller information were issued or placed for sale in the United States.
66 To the extent that Schwab relies on the “foreseeability” theory (i.e.,
it was foreseeable that the notes would arrive in the United States), we reject
it. See LIBOR IV, WL 6243526, at *31; see also Schwab, 883 F.3d at 87-88.
60
investors’ own trades – not at the direction of the issuers.
Such
a fortuitous, plaintiff-driven contact cannot support personal
jurisdiction.”
LIBOR IV, 2015 WL 6243526, at *31; see also
Volkswagen, 444 U.S. at 298 (1990) (“[T]he mere unilateral activity
of those who claim some relationship with a nonresident defendant
cannot satisfy the requirement of contact with the forum State.”).
Therefore, in addition to domestic defendants who issued
notes in the United States, we exercise specific jurisdiction over
foreign Floating-Rate Issuer defendants who Schwab sufficiently
alleges issued notes or placed them for sale in the United States.
Jurisdiction Based on the Sale of Floating-Rate Notes
Schwab
also
defendants 67 for
asserts
claims
selling Schwab
against
Panel
Bank
floating-rate notes that were
issued by either themselves or others.
165, 170, 172, 187.
five
See Schwab SAC ¶¶ 160-61,
Relying on Schwab, Schwab argues that we must
exercise jurisdiction over the five defendants based on their
direct sales to Schwab.
See 883 F.3d at 82 (“Allegations of
billions of dollars in transactions in California easily make out
a prima facie showing of personal jurisdiction for claims relating
to those transactions.” (emphasis added)).
Defendants correctly point out that, in making this argument,
Schwab ignores our prior rulings and other binding authorities.
67
The defendants are Bank of America, N.A., Deutsche Bank AG, JPMorgan
Chase Bank, N.A., Royal Bank of Canada, and The Royal Bank of Scotland plc.
61
Generally, there can be no material omission under § 10(b) absent
a duty to disclose. 68
See, e.g., Basic v. Levinson, 485 U.S. 224,
239 n.17 (1988) (“Silence, absent a duty to disclose, is not
misleading under Rule 10b–5.”); Chiarella v. United States, 445
U.S. 222, 235 (1980) (“When an allegation of fraud is based upon
nondisclosure, there can be no fraud absent a duty to speak.”).
As we held in LIBOR IV, entities that were merely involved in the
sale of LIBOR-based financial instruments “had no duty under
contract law to advise sophisticated investors of LIBOR-related
risks, no duty to deal at any particular price, and no ongoing
duties of good faith after concluding a sale on bargained-for
terms.”
2015 WL 6243526, at *75.
Therefore, we do not exercise
specific jurisdiction over defendants who were merely involved in
the sale of floating-rate notes to Schwab. 69
Jurisdiction Based on False LIBOR Submissions
Schwab also asserts that we should exercise jurisdiction over
Non-Counterparty
defendants
for
their
allegedly
false
LIBOR
submissions in furtherance of the conspiracy, reasoning that there
is “at least a ‘but for’ connection between the sale of floating-
68
Whether a selling entity had a duty to disclose may be an issue of
merits, not of jurisdiction. However, since defendants raise the issue as one
of jurisdiction, see Defs.’ Joint MTD PJ Reply, at 13-15, we address it here.
69 We still exercise specific jurisdiction over four of the five Panel
Bank defendants (Bank of America, N.A., Deutsche Bank AG, Royal Bank of Canada,
and The Royal Bank of Scotland plc) based on Schwab’s allegations that they
issued notes in the United States or placed notes for sale with U.S.-based
agents.
62
rate notes to Schwab . . . and Section 10(b) claims against all
Defendants based on their false LIBOR quotes.”
Schwab Br., at 17.
As a threshold matter, a private cause of action under Section
10(b) of the Exchange Act is limited to “actual . . . sellers” of
securities.
Blue Chip Stamps, 421 U.S. at 731.
Thus, Schwab
cannot assert 10(b) claims against Non-Counterparty defendants.
In addition, as defendants point out, § 10(b) of the Exchange Act
may not be the predicate of a conspiracy claim.
See, e.g.,
Dinsmore v. Squadron, Ellenoff, Plesent, Sheinfeld & Sorkin, 135
F.3d 837, 841 (2d Cir. 1998).
Even if such a cause of action
existed under the Exchange Act, the Second Circuit held that the
alleged conspiracy to manipulate LIBOR “had nothing to do with the
California
transactions.”
Furthermore,
we
have
See
repeatedly
Schwab,
rejected
883
the
F.3d
at
87.
assertion
that
defendants had sufficient contacts with the United States by
transmitting LIBOR data to data vendors in the United States.
supra Part III.2.4.
See
To the extent that Thomson Reuters had a role
in the setting of all LIBOR benchmarks, it was a pre-existing one
as a calculation agent of the BBA, who is neither a defendant nor
a co-conspirator in this action. 70
at *10.
See LIBOR VI, 2016 WL 7378980,
Accordingly, we do not exercise specific jurisdiction
70 The BBA’s limited use of Thomson Reuters as its calculation agent simply
does not change the fact that the setting of LIBOR rates for 10 currencies,
including the U.S. Dollar, took place at 11:00 AM London time. See British
Bankers’ Ass’n, Understanding the Construction and Operation of BBA LIBOR Strengthening for the Future, Jun. 10, 2008, § 9.1.
63
over Non-Counterparty defendants for Schwab’s Exchange Act claims
based on the allegations of false LIBOR submissions.
2.3. Pendent Jurisdiction over State Law Claims
As
relevant
here,
the
doctrine
of
pendent
personal
jurisdiction provides that “where a federal statute authorizes
nationwide service of process, and the federal and state claims
derive from a common nucleus of operative fact, the district court
may assert personal jurisdiction over the parties to the related
state law claims even if personal jurisdiction is not otherwise
available.”
1056
(2d
omitted).
IUE AFL–CIO Pension Fund v. Herrmann, 9 F.3d 1049,
Cir.
1993)
(citation
and
internal
marks
However, pendent jurisdiction “need not be exercised in
every case in which it is found to exist.
been
quotation
recognized
that
pendent
jurisdiction
discretion, not of plaintiff’s right.”
Gibbs, 383 U.S. 715, 726 (1966).
It has consistently
is
a
doctrine
of
United Mine Workers v.
In determining whether pendent
jurisdiction should be exercised, a federal court must consider
“judicial economy, convenience and fairness to litigants.”
Id.
As discussed infra, see Part IV.3.2, all of Schwab’s Exchange
Act claims for which defendants were not dismissed for lack of
personal jurisdiction survive defendants’ motion to dismiss for
failure to state a claim.
And as we did in LIBOR IV, we exercise
pendent personal jurisdiction over those defendants for state law
claims deriving from “a common nucleus of operative fact” as
64
Schwab’s surviving Exchange Act claims.
*24.
See 2015 WL 6243526, at
Conversely, since we have dismissed Schwab’s 10(b) claims
that are based on allegedly false LIBOR submissions, we do not
exercise
pendent
party
jurisdiction
over
Non-Counterparty
defendants for Schwab’s fraud (and aiding and abetting) claims,
which are based on the same factual predicate. 71
Schwab urges a different outcome, arguing that we should
exercise
pendent
defendants
for
submissions
party
its
because
state
Inc.,
252
law
those
“substantially overlap.”
Facebook,
jurisdiction
F.
claims
claims
over
Non-Counterparty
premised
and
its
on
false
federal
LIBOR
claims
Schwab Br., at 19 (quoting Cohen v.
Supp.
3d
140,
154
(E.D.N.Y.
2017)).
However, Schwab’s surviving Exchange Act claims are, as defendants
point out, based on Floating-Rate Issuer defendants’ failure to
disclose the artificial suppression of LIBOR in their issuance of
notes in the United States.
Thus, all factual events underlying
the federal claims took place in the United States, while allegedly
false LIBOR submissions occurred in London. 72 Moreover, exercising
71 As discussed infra, see Part IV.3.5, we dismiss Schwab’s claims of
tortious interference against certain Panel Bank defendants because the claims
are time-barred and insufficiently pled.
But even if the claims survived
defendants’ motion to dismiss, we would still decline to exercise pendent
jurisdiction over defendants for those claims because they are based on those
defendants’ allegedly false LIBOR submissions to the BBA.
72 Schwab asserts that we should exercise specific jurisdiction over NonCounterparty defendants for state law claims under the conspiracy theory of
jurisdiction. Even if California recognized conspiracy jurisdiction (which it
does not, see supra note 29), Schwab fails to plausibly allege conspiracy
jurisdiction because defendants’ alleged acts, see Schwab SAC ¶¶ 257-64, are
not overt acts in furtherance of the alleged conspiracy. See supra Part III.2.4.
65
pendent party jurisdiction over Non-Counterparty defendants, many
of whom are foreign and had no contacts of their own with the
United States, “would not comport with notions of fair play and
substantial justice.”
Laydon v. Mizuho Bank, Ltd., No. 12-cv-3419
(GBD), 2015 WL 1515358, at *6 (S.D.N.Y. Mar. 31, 2015); see also
Brown v. Lockheed Martin Corp., 814 F.3d 619, 625 (2d Cir. 2016).
Finally,
as
we
noted
in
LIBOR
IV,
the
Second
Circuit
“recognizes a version of pendent personal jurisdiction under which
a federal court may ‘entertain [state-law] claims that are not
expressly covered by the long-arm statute, so long as they derive
from the same nucleus of operative fact as claims that are.’”
2015
WL 6243526, at *23 n.40 (alteration in original) (quoting Hanly v.
Powell Goldstein, L.L.P., 290 F. App'x 435, 438 (2d Cir. 2008)).
“This judge-made exception to the general rule that a federal court
must look to the law of the forum state to determine whether
personal
jurisdiction
must
lie,”
id.
(citation
and
internal
quotation marks omitted), may have bearing on Schwab’s attempt to
establish jurisdiction over some Indirect Counterparty defendants
who “affirmatively directed notes for sale in California . . .
through Bank Affiliates that acted as agents for the purpose of
selling notes.”
Schwab SAC ¶ 245.
But Schwab alleges that
defendants designated the affiliates as their selling agents and
provided
“authority
offering
and
materials
permissible
that
specified
activities
66
with
the
affiliates’
respect
to
the
offering.”
Id. ¶ 131.
Since Schwab’s allegations sufficiently
show that the affiliates acted “for the benefit of, with the
knowledge
and
consent
of,
and
under
some
control
by,
the
nonresident principal,” Schwab, 883 F.3d at 85, we can (and do)
exercise
specific
jurisdiction
over
Indirect
Counterparty
defendants based on their affiliates’ activities.
Thus, the
consideration of the Second Circuit’s rule is academic.
3.
Motion to Dismiss Schwab’s Claims Based for Failure to
State a Claim
Defendants
move
to
dismiss
under
Rule
12(b)(6)
Schwab’s
federal claims and its state law claims for: (1) unjust enrichment
premised on Schwab’s purchase of fixed-rate notes; and (2) tortious
interference with contracts.
Only Schwab’s 10(b) claims against
Floating-Rate Issuer defendants survive the motion. 73
3.1. Addition of New Defendants and Claims
We first address Schwab’s amendments that identify: (1) Bank
of Scotland plc, Credit Suisse AG, Lloyds Bank plc, and Royal Bank
of Scotland plc as Panel Bank defendants, see, e.g., Schwab SAC ¶
48 n.48 (citing Fed. R. Civ. P. 15(c)(1)); and (2) certain Indirect
Counterparty defendants as both direct and indirect sellers of
financial instruments, see, e.g., id. ¶ 161 (identifying Bank of
73 The parties agree that Schwab’s 10(b) claims exclude floating-rate
instruments with maturities of less than nine months. See 15 U.S.C. § 78c(a)(10)
(excluding from the definition of a “security” any note “which has a maturity
at the time of issuance of not exceeding nine months”).
67
America, N.A., Royal Bank of Canada, and Royal Bank of Scotland
plc as having conducted “direct transactions” with Schwab).
In its previous complaints in this action, filed in April
2013 (ECF No. 1, 13-cv-7005 (NRB)) and October 2014 (ECF No. 672),
Schwab incorrectly identified certain members of the LIBOR panel.
For example, in its April 2013 complaint that was originally filed
in California state court and removed to federal court, Schwab
identified Credit Suisse Group AG (the parent company of the Credit
Suisse entities) as a member of the LIBOR panel even though Credit
Suisse AG is the entity that served on the panel.
See April 2013
Compl., 13-cv-7005 (NRB), ECF No. 1-1, ¶¶ 39, 49.
Schwab made
similar mistakes with respect to three other entities.
43
(identifying
Lloyds
Banking
Group
plc
and
See id. ¶¶
HBOS
plc
as
defendants), 46 (identifying The Royal Bank of Scotland Group plc
as a defendant), 49 (identifying defendants as panel members).
Schwab moves to correct its mistakes by substituting for the
erroneously
named
defendants
their
affiliated
entities
that
actually served on the LIBOR panel during the relevant period. 74
Schwab asserts that it did not learn the true identities of the
LIBOR Panel Banks until November 2014, when the banks’ employee
declarations, see ECF Nos. 767, 781, 784, identified the entities
that served on the LIBOR panel.
74
Defendants object to Schwab’s
Schwab removes the original defendants from those claims deriving from
service on the LIBOR panel. However, Schwab continues to name the original
defendants in its Section 20(a) and fraud claims as parent company defendants.
68
amendments and argue that Schwab attempts to impermissibly add new
defendants.
See Joint Mem. of Law in Supp. of Defs.’ Mot. for
Partial Dismissal of Schwab and Doral Compls. For Failure to State
a Claim (“Defs.’ Joint MTD Br.”), at 19-21, ECF No. 2623.
We accept Schwab’s position that it merely seeks to correct
its mistake concerning the proper identity of the relevant parties
by now bringing its claims against defendants who “knew or should
have known that [they] would have been named as . . . defendant[s]
but for an error.”
Krupski v. Costa Crociere S.p.A., 560 U.S.
538, 548 (2010); see also Datskow v. Teledyne, Inc., 899 F.2d 1298,
1302
(2d
Cir.
1990)
(holding
that
plaintiffs’
complaint
sufficiently alerted the erroneously named corporate defendant’s
affiliated entity that plaintiffs sought to sue it by including
details concerning that entity). In its original complaint, Schwab
clearly indicated that it sought to bring its claims against the
entities that served on the LIBOR panel, and thus those entities
will not be “prejudiced in defending” themselves in the litigation.
Fed. R. Civ. P. 15(c)(1)(C)(i).
Schwab also seeks to clarify that, based on its transaction
data, certain Indirect Counterparty defendants sold notes both
directly and indirectly to Schwab.
Though Schwab thus seeks to
bring new claims against some of the original defendants based on
transaction data that it had since the beginning of its lawsuit,
the
amendments
would
neither
“require
69
[defendants]
to
expend
significant additional resources to conduct discovery and prepare
for trial” nor “significantly delay the resolution of the dispute.”
Pasternack v. Shrader, 863 F.3d 162, 174 (2d Cir. 2017) (internal
quotation marks omitted).
Therefore, we allow the amendments. 75
3.2. Exchange Act § 10(b) Claims
Defendants
assert
that
we
should
dismiss
Schwab’s
10(b)
claims because Schwab continues to fail to adequately plead loss
causation.
See LIBOR IV, 2015 WL 6243526, at *70 (rejecting
Schwab’s theory that it suffered losses on floating-rate notes
purchased and interest paid during the persistent suppression
period because any downward distortion in the LIBOR rate would
have been offset by a reduction in the price of the instrument).
As discussed in Part II of this opinion, Schwab vacated our
dismissal of Schwab’s 10(b) claims based on floating-rate notes. 76
The Second Circuit reasoned that Schwab could have plausibly
alleged two potential theories of loss causation: Schwab could
have
incurred
losses
if
it
“held
75
a
mispriced
instrument
to
At oral argument, we asked defendants whether allowing these new claims
would subject them to any prejudice “beyond potentially [rendering them] liable
for additional damages.”
Tr. 10:3-22.
Defendants simply stated that the
amendments should not be allowed because they were not specifically “permitted
by the mandate of the Second Circuit to this Court” in Schwab. Id. However,
the Circuit’s mandate did not preclude such amendments, and Rule 15(a) vests
the Court with broad discretion to permit amendments “when justice so requires.”
76 The Second Circuit, however, upheld our rejection of Schwab’s loss
causation theory based on suppressed interest payments made during the
persistent suppression period. See Schwab, 883 F.3d at 93 (“We agree with the
district court that to the extent that Schwab seeks to impose liability for
false LIBOR submissions that affected the amount of money it received on
instruments it had already purchased, its claims fail.” (emphasis omitted)).
70
maturity”
or
“tried
to
manipulation was revealed.”
sell
[the
instrument]
after
Schwab, 883 F.3d at 93.
LIBOR
The Circuit
instructed Schwab to add on remand “allegations clarifying the
loss causation theory or theories on which it relied.”
Id.
In light of Schwab, we now find that Schwab has adequately
clarified its theory and plausibly alleged loss causation.
Circuit noted, Schwab’s burden here is “not a heavy one.”
As the
Loreley
Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160,
187 (2d Cir. 2015).
Schwab must simply give defendants “some
indication” of the actual loss and “of a plausible causal link
between the loss and the alleged fraud.”
Schwab, 883 F.3d at 93
(citation and internal quotation marks omitted).
Schwab alleges
that it held “virtually all” 77 of its floating-rate notes from
issuance to maturity and that “each time a coupon payment was made,
Schwab received less than it would have received absent Defendants’
suppression of LIBOR.”
Schwab SAC ¶ 194.
Applying the Circuit’s
rationale in Schwab, we find that these allegations plausibly
provide a causal link between the alleged losses (i.e., lower
amounts on coupon payments) and defendants’ allegedly fraudulent
manipulation of LIBOR.
77
Schwab admits that it did not hold all of the notes to maturity. See
Letter from Michael J. Miarmi to the Court, Feb. 12, 2019, ECF No. 2794. Whether
Schwab held all of its notes to maturity is, defendants argue, “central to
determining whether [Schwab] has stated a claim.”
See Letter from Alan C.
Turner to the Court, Feb. 25, 2019, ECF No. 2821. However, the Second Circuit
found that, “if Schwab tried to sell a floating-rate instrument after LIBOR
manipulation was revealed, it might have been forced to sell at a loss.” See
Schwab, 883 F.3d at 93.
71
Defendants also move to dismiss Schwab’s 10(b) claims that
they argue are based on the purchase or sale of instruments that
are not “securities” under the Exchange Act.
78c(a)(10).
See 15 U.S.C. §
The appendices that Schwab filed with its second
amended complaint contain detailed information about the financial
transactions that serve as the factual predicates of Schwab’s
claims. In one appendix, Schwab lists transactions involving “time
certificates,”
see, e.g., Schwab SAC App’x A, at 95 (transactions
numbered FL943-946), which Schwab alleges are floating-rate notes
purchased from broker-dealers.
Defendants contend that the “time
certificates” are certificates of deposit that are insured by the
FDIC and are “protected by the reserve, reporting, and inspection
requirements of the federal banking laws.”
455 U.S. 551, 558 (1982).
constitute
securities
Marine Bank v. Weaver,
While such certificates would not
under
Marine
Bank,
defendants
fail
to
identify a single allegation in Schwab’s complaint that suggests
that the instruments are so regulated. 78
factual
allegations
and
drawing
all
Accepting as true all
reasonable
inferences
in
Schwab’s favor, we find it plausible that the instruments are
widely offered securities that are not “abundantly protected under
the federal banking laws.”
Id. at 559.
78
As a matter of fact, Schwab, in response to our request at oral argument,
submitted evidence that the instruments at issue were not regulated by the FDIC.
See Letter from Michael J. Miarmi, Feb. 12, 2019, ECF No. 2794.
72
3.3. Exchange Act § 20(a) Claims
Schwab asserts 20(a) claims against the parent companies of
the Panel Bank defendants that are the subject of the 10(b)
claims. 79
To establish a prima facie case under Section 20(a) of
the Exchange Act, plaintiff must show: (1) “a primary violation by
the controlled person”; (2) “control of the primary violator by
the targeted defendant”; and (3) “that the controlling person was
in some meaningful sense a culpable participant in the fraud
perpetrated by the controlled person.”
Sec.,
Inc.,
quotation
101
marks
F.3d
and
1450,
1472-73
alterations
S.E.C. v. First Jersey
(2d
Cir.
omitted).
1996)
As
the
(internal
parties
recognize, “this Court has consistently sided with most judges in
the
District
and
found
that
participation with scienter.”
a
plaintiff
must
plead
culpable
In re ForceField Energy Inc. Sec.
Litig., No. 15-cv-3020 (NRB), 2017 WL 1319802, at *16 (S.D.N.Y.
Mar. 29, 2017) (emphasis added).
Therefore, to withstand a motion
to dismiss a 20(a) claim, a plaintiff “must allege, at a minimum,
particularized
facts
of
the
controlling
person’s
conscious
79 Schwab also brings a 20(a) claim against Barclays Bank plc for nondefendant Barclays Capital Inc.’s “violations of Section 10(b) in failing to
disclose, in soliciting and selling floating-rate notes to Schwab, that LIBOR
was suppressed.” Schwab SAC ¶ 198. Since a broker or selling agent does not
have a duty to disclose LIBOR manipulation, see supra Part IV.2.2, Schwab fails
to allege any primary violation by Barclays Capital, and it therefore cannot
establish control liability against Barclays Bank plc. See ATSI Commc’ns, Inc.
v. Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007) (holding that control
person liability could not be established when the plaintiff failed to allege
any primary violation by the controlled entity).
73
misbehavior or recklessness.”
In re MBIA, Inc., Sec. Litig., 700
F. Supp. 2d 566, 598 (S.D.N.Y. 2010).
In support of its 20(a) claims, Schwab advances two theories
of control person liability. First, Schwab asserts that the parent
company defendants are liable for their Panel Bank subsidiaries’
alleged false LIBOR submissions to the BBA.
See Schwab SAC ¶ 196.
Second, Schwab argues that the parent company defendants are liable
for their Panel Bank subsidiaries’ failure to disclose the alleged
LIBOR manipulation in their issuance of floating-rate notes.
¶ 197.
Id.
However, both theories fail because Schwab does not set
forth any particularized factual allegation that demonstrates the
parent company defendants’ culpable participation. 80 Schwab merely
alleges that each of the parent company defendants was “a culpable
participant in the fraud” alleged in Schwab’s complaint.
SAC ¶ 483.
Schwab
Such a general and conclusory allegation of culpable
participation cannot withstand defendants’ motion.
Schwab misleadingly cites our prior ruling in LIBOR IV in
support of its argument that it has sufficiently alleged the parent
company defendants’ culpable participation.
In LIBOR IV, we found
that, for fraud by omission in the course of offering or trading
securities, it is sufficient for purposes of pleading scienter “to
80 Since we have rejected Schwab’s 10(b) claims premised on false LIBOR
submissions to the BBA, the first theory also fails on the independent ground
that Schwab has failed to plausibly allege a primary violation by Panel Bank
defendants. See ATSI, 493 F.3d at 108.
74
state
plausibly
manipulating
LIBOR
that
or
defendants
that
were
defendants
either
were
themselves
large
banking
institutions with access to nonpublic data about real inter-bank
transactions.”
2015 WL 6243526, at *58.
Specifically, Schwab
argues that, since the parent company defendants are large banking
institutions who could have plausibly known of the manipulation
“when LIBOR suppression became so widespread,” id., Schwab asserts
that it is “highly plausible that the Parent Company Defendants
knew about or recklessly disregarded” the Panel Bank defendants’
manipulation of LIBOR, Schwab Br., at 39.
However, as defendants
correctly point out, the ruling in LIBOR IV concerned whether a
Counterparty defendant had a duty to disclose facts, such as
suppressed LIBOR rates, that are “basic to the transaction and
when the customs of the trade . . . would reasonably demand
disclosure.”
that
the
See 2015 WL 6243526, at *57.
parent
companies
knew
about
We have never found
or
participated
in
manipulating LIBOR, and Schwab does not allege particularized
facts that demonstrate “a showing of both fraudulent conduct and
a culpable state of mind” by the defendants.
Steed Fin. LDC v.
Nomura Sec. Int’l, Inc., No. 00-cv-8058 (NRB), 2001 WL 1111508, at
*10 (S.D.N.Y. Sept. 20, 2001).
Therefore, we dismiss Schwab’s
20(a) claims against the parent company defendants.
75
3.4. Unjust Enrichment Claims 81
In LIBOR IV, we dismissed Schwab’s unjust enrichment claims
mainly for lack of personal jurisdiction. 82
In this motion,
defendants argue that we should dismiss Schwab’s unjust enrichment
claims against defendants who issued fixed-rate notes because,
based on the Circuit’s affirmance of our dismissal of Schwab’s
Exchange Act and fraud claims 83 premised on fixed-rate notes,
Schwab cannot and does not plausibly allege that it was harmed by
the alleged LIBOR suppression on fixed-rate notes. 84
81 The parties agree that Schwab’s unjust enrichment claims based on
floating-rate notes are limited to the notes that were issued by Floating-Rate
Issuer defendants.
However, defendants request that, since Schwab does not
specifically state that it seeks to recover from defendants based only on their
issuance of floating-rate notes (and not on their sale of floating-rate notes),
we require Schwab to file a corrected complaint. See Joint Reply Mem. of Law
in Supp. of Defs.’ Mot. for Partial Dismissal of Schwab and Doral Compls. for
Failure to State a Claim (“Defs.’ Joint MTD Reply”), at 9 n.10, ECF No. 2697.
Since Schwab has confirmed that its unjust enrichment claims based on floatingrate notes are “limited to transactions in which those Defendants issued the
notes,” Schwab Br. 47 n.20, no correction is necessary.
82 As discussed in Part II of this opinion, we also held that they were
partially time-barred, see LIBOR IV, 2015 WL 6243526, at *177, but that ruling
was vacated in Schwab, see 883 F.3d at 96-98.
83 We dismissed the state law fraud claims because “plaintiffs who used
LIBOR-based pricing to decide whether to invest in LIBOR-based instruments”
were relying on the “fraud on the market” doctrine that was rejected under
California law. LIBOR IV, 2014 WL 6243526, at *65. The Circuit found that,
because Schwab’s allegations went “beyond the bare assertion that Defendants’
fraudulent LIBOR submissions were embedded in the price of fixed-rate
instruments,” we erred in finding that Schwab was relying on that doctrine.
Schwab, 883 F.3d at 91. The Circuit, however, affirmed our dismissal because
defendants had no reason to expect that Schwab would consider LIBOR in deciding
whether to buy fixed-rate notes, which did not reference LIBOR at all. Id. at
91-92; see also supra Part II.
84
The parties disagree as to: (1) whether Schwab asserted unjust
enrichment claims based on fixed-rate notes in the first amended complaint; and
(2) whether defendants waived their right to dismiss the claims under Rule
12(b)(6) by not raising the argument in their initial motion to dismiss. Since
Schwab alleged that it purchased both fixed-rate and floating-rate instruments,
see Schwab’s Amend. Compl., ECF No. 672, ¶¶ 5, 12, 270, and did not specify
which instruments served as the basis for its unjust enrichment claims, we draw
a reasonable inference in Schwab’s favor and conclude that Schwab asserted
unjust enrichment claims based on both fixed-rate and floating-rate notes. We
76
Under California law, the legal elements of unjust enrichment
are “receipt of a benefit and unjust retention of the benefit at
the expense of another.”
Lectrodryer v. SeoulBank, 77 Cal. App.
4th 723, 726 (2000); see also First Nationwide Sav. v. Perry, 11
Cal. App. 4th 1657, 1662 (1992).
form of advantage.”
“The term ‘benefit’ denotes any
F.D.I.C. v. Dintino, 167 Cal. App. 4th 333,
346 (2008) (internal quotation marks omitted).
The equitable
remedy of restitution “is designed to restore the aggrieved party
to his or her former position by return of the [benefit] or its
equivalent in money.”
Id. (citation omitted).
Schwab conclusorily asserts that defendants who issued fixedrate notes were unjustly enriched because the LIBOR suppression
“caused Schwab to receive lower returns on those notes in exchange
for the use of its money than if the suppression had not occurred.”
Schwab SAC ¶ 208.
See also
id. ¶ 139 (“[T]o the extent LIBOR was
suppressed during the Relevant Period, the yield received on
[fixed-rate notes] would have been correspondingly lower.”).
In
making this claim, Schwab fails to understand that a yield rate on
a bond is calculated based on its price and interest rate.
The
price fluctuates based on macroeconomic conditions and, unless
defendants had a magical, unilateral power to control the world
economy, they could not have manipulated the yield rates on fixed-
also conclude that defendants did not waive their right to challenge Schwab’s
fixed-rate unjust enrichment claims. See Fed. R. Civ. P. 12(h)(2).
77
rate notes and received monetary benefits.
Furthermore, as the
Second Circuit found, Schwab “received exactly what it expected”
when it purchased fixed-rate notes.
Schwab, 883 F.3d at 96.
Schwab also asserts that suppressed LIBOR rates allowed the
issuing defendants to “offer less interest in return for the use
of Schwab’s money.”
Schwab SAC ¶ 208. But there is no allegation
that defendants either took LIBOR into consideration when setting
interest rates on fixed-rate notes or suppressed LIBOR in order to
set low interest rates on the notes.
In fact, Schwab cannot link
defendants’ alleged profits from issuing fixed-rate notes to LIBOR
manipulation because fixed-rate notes do not “reference or relate
to Defendants’ LIBOR submissions in any way.”
96.
Schwab, 883 F.3d at
In other words, there is no causal connection between LIBOR
manipulation and the profits that defendants allegedly reaped from
Schwab. 85
Schwab even admits that using LIBOR as a reference point
“to evaluate [the] credit and market risks” of investments was an
independent decision made by investors; issuers do not quote fixedrate
instruments
in
terms
of
LIBOR.
Schwab
SAC
¶
139-40.
85 Schwab argues that, under California law, pleading unjust enrichment
“at most requires alleging but-for caus[ation].”
Schwab Br., at 47 (citing
Uzyel v. Kadisha, 188 Cal. App. 4th 866, 892 (2010)).
This is a gross
misinterpretation of the Uzyel decision.
The plaintiff in Uzyel brought a
breach of trust suit against a trustee seeking a disgorgement of profits made
through the alleged breach. The court found that the plaintiffs did not need
to trace the misappropriated funds in the trust to the profit that the trustee
gained by using the funds. Rather, the plaintiff could prevail on an unjust
enrichment claim if the plaintiff could “establish a sufficient causal
relationship between the wrongful conduct and the defendant’s profits.” Uzyel,
188 Cal. App. 4th at 892. The court did not hold that alleging but-for causation
was sufficient to plead a plausible unjust enrichment claim.
78
Following Schwab’s line of reasoning, anyone who decided to use
LIBOR as a benchmark in comparing investment options – which would
include virtually all investors in the world, since “LIBOR is a
component
or
benchmark
used
in
countless
business
dealings,”
Gelboim, 823 F.3d at 765 – would be able to bring suit against
defendants.
See Schwab, 883 F.3d at 92.
In sum, as Schwab fails to plausibly allege that Fixed-Rate
Issuer defendants were unjustly enriched, we dismiss Schwab’s
unjust enrichment claims based on fixed-rate notes.
3.5. Tortious Interference Claims
Schwab previously asserted claims for tortious interference
with prospective economic advantage, which we dismissed for lack
of personal jurisdiction in LIBOR IV.
Schwab now brings new
tortious interference claims, this time on the ground that certain
Panel Bank defendants 86 interfered with Schwab’s contracts with the
defendants’ affiliated entities.
Defendants argue that these new
claims are both time-barred and meritless.
Federal
Rule
of
Civil
Procedure
15(c)(1)(B)
permits
an
amendment to a complaint to relate back to the original pleading
if “the amendment asserts a claim or defense that arose out of the
conduct, transaction, or occurrence set out — or attempted to be
set out — in the original pleading.”
86
Fed. R. Civ. P. 15(c)(1)(B).
Schwab asserts these claims against Panel Bank defendants Bank of Tokyo
Mitsubishi UFJ, Ltd., Citibank, N.A., HSBC Bank plc, JPMorgan Chase Bank, N.A.,
and The Royal Bank of Scotland plc.
79
As we have explained, “a viable tortious interference claim alleges
that a panel bank entity intended to disrupt a specific contract.”
LIBOR IV, 2015 WL 6243526, at *148.
Yet Schwab made no allegations
in its original and first amended complaints related to this unique
factual predicate.
with
which
alleged
defendants
that
interfered
In fact, it failed to specify any contract
Panel
with
unspecified
allegedly
Bank
an
defendants’
economic
“issuers
and
interfered.
manipulation
relationship
sellers
Rather,
of
between
of
Schwab
LIBOR
Schwab
LIBOR-based
and
financial
instruments” “by defeating the parties’ expectations that LIBOR
would be set honestly and accurately and would provide a fair
benchmark for [] LIBOR-based financial instruments.”
April 2013
Compl. ¶¶ 346-47; Schwab’s Amend. Compl. ¶¶ 336-37.
Even though
both sets of claims concern the same underlying event (defendants’
alleged
manipulation
of
LIBOR)
and
ultimate
result
(Schwab’s
financial loss from receiving lower payments or overpaying for
financial instruments), Schwab’s new claims are based on a distinct
set of contracts that were not specified or referenced in the
original complaint.
See Nettis v. Levitt, 241 F.3d 186, 193 (2d
Cir. 2001) (holding that the plaintiff’s new claim did not relate
back
to
his
original
complaint
because
the
new
claim,
while
stemming from the same event as the original claims, was based on
“an entirely distinct set” of facts), overruled on other grounds
by
Slayton
v.
Am.
Exp.
Co.,
460
80
F.3d
215
(2d
Cir.
2006).
Therefore, we find that the new claims do not relate back to its
original complaint under Rule 15. Accordingly, they are untimely.
Even if we assume arguendo that Schwab’s new claims relate
back, they fail on the merits in any event.
Under California law,
Schwab must plead: “(1) a valid contract between [Schwab] and a
third party; (2) defendant’s knowledge of this contract; (3)
defendant’s
intentional
acts
designed
to
induce
a
breach
or
disruption of the contractual relationship; (4) actual breach or
disruption of the contractual relationship; and (5) resulting
damage.”
Pac. Gas & Elec. Co. v. Bear Stearns & Co., 791 P.2d
587, 589-90 (Cal. 1990) (en banc).
In LIBOR IV, we allowed
tortious interference claims to proceed as to bonds issued by
corporate affiliates because it was “plausible that corporate
affiliates are aware of each other’s financing arrangements.” 87
2015
WL
6243526,
at
*84.
Relying
on
that
decision,
Schwab
conclusorily alleges without any factual specificity that the
Panel Bank defendants “acted with the knowledge” that interference
with
Schwab’s
contractual
relationships
was
“certain
or
substantially certain to result from” the manipulation of LIBOR.
Schwab SAC ¶ 512-13.
However, even assuming (without deciding)
that such an allegation suffices to plead the “knowledge” element
of a tortious interference claim, LIBOR IV predates the Second
87
In addition, we held that plaintiffs “must ultimately prove that the
issuing entity breached the implied covenant by assisting in the panel entity’s
LIBOR manipulation.” LIBOR IV, 2015 WL 6243526, at *84.
81
Circuit’s decisions in Schwab, in which the Circuit determined
that “the conspiracy to manipulate LIBOR had nothing to do with”
LIBOR-based financial transactions. 883 F.3d at 87. If the object
of the pled conspiracy had nothing to do with LIBOR-based financial
transactions, it is not plausible that the Panel Bank defendants’
manipulation of LIBOR was an intentional act designed to induce
their affiliates to breach or disrupt their contracts with Schwab.
Because Schwab fails to plausibly allege at least one required
element, we dismiss its new claims of tortious interference with
contracts in their entirety. 88
4.
Motion to Dismiss Doral’s Claims for Lack of Personal
Jurisdiction
In Part III of this Memorandum and Order, we considered and
mostly rejected the FDIC’s proposed amendments related to personal
jurisdiction,
which
are
jurisdictional allegations.
substantially
similar
to
Doral’s
We do not repeat our rulings from
Part III, though they apply here with equal force. 89
We do,
however, address two jurisdictional issues that are specific to
Doral’s claims concerning swap transactions.
88
Even if Schwab’s new tortious interference claims were timely and
meritorious, we would not exercise pendent jurisdiction over them because Schwab
asserts the claims against Non-Counterparty defendants based on their allegedly
false LIBOR submissions in London. See supra Part IV.2.3.
89
We explicitly state that Doral’s claims against Non-Counterparty
defendants based on conspiracy jurisdiction are dismissed for lack of
jurisdiction.
82
First, defendants argue that personal jurisdiction cannot be
premised on Doral’s swap transactions that occurred before the
alleged LIBOR manipulation period.
15 n.16.
Defs.’ Joint MTD PJ Reply, at
Since Doral does not explain how defendants can be held
liable for transactions that were not induced by their allegedly
fraudulent omissions, we reject its attempt to establish personal
jurisdiction over defendants for claims based on swap transactions
that occurred before the relevant time period.
Second,
defendants
challenge
Doral’s
reliance
on
forum
selection clauses in its swap agreements that submit parties “to
the jurisdiction of the Courts of the State of New York,” reasoning
that such clauses do not include federal courts located in New
York.
See Beach v. Citigroup Alternative Investments LLC, No. 12-
cv-7717 (PKC), 2014 WL 904650, at *8 (S.D.N.Y. Mar. 7, 2014) (“[A]
majority of courts have held that ‘the courts of’ a state refers
only to state courts, and not to state and federal courts.”).
Doral argues that Beach is inapposite because the forum selection
clause at issue in Beach vested “exclusive” jurisdiction in the
courts of the state, whereas the clauses at issue here do not
require such exclusivity.
Pls.’ Joint PJ Br., at 5 n.5.
However,
the Beach court’s analysis does not in any way turn on the issue
of exclusivity.
Rather, the court only considered the clause’s
use of the word “of,” rather than “in.”
Beach, 2014 WL 904650, at
*8 (“The word ‘of’ denotes the source of a court’s authority and
83
is more than its mere location.
The courts ‘of’ a state are courts
whose authority derive[s] from that state’s power.”).
Therefore,
we agree with defendants and reject Doral’s reliance on the forum
selection clauses to establish jurisdiction in this forum.
5.
Motion to Dismiss Doral’s Claims for Failure to State
a Claim
Doral asserts federal antitrust claims as well as numerous
state law claims.
Many of Doral’s state law claims 90 are identical
to the FDIC’s claims that, as Doral acknowledges, were previously
dismissed by this Court. 91
Therefore, we consider only the claims
that Doral addresses in response to defendants’ motion to dismiss
for failure to state a claim.
5.1. Fraud, Tortious Interference, and Negligent
Misrepresentation Claims
Defendants
move
to
dismiss
Doral’s
fraud,
tortious
interference, and negligent misrepresentation claims as untimely
in
whole
or
Specifically,
in
part.
defendants
See
Defs.’
argue
90
Joint
that
MTD
Br.,
Doral’s
at
22.
negligent
The claims include: fraud and negligent misrepresentation claims (and
related aiding and abetting and civil conspiracy claims) based on allegedly
false statements about LIBOR; fraud by omission claims against Non-Counterparty
defendants; tortious interference with contract claims (and related aiding and
abetting and civil conspiracy claims) that exceed the scope permitted under
LIBOR IV, 2015 WL 6243526, at *84; tortious interference with prospective
economic advantage claims (and related aiding and abetting and civil conspiracy
claims); and a breach of the implied covenant of good faith and fair dealing
claim against Credit Suisse International.
91 At oral argument, the FDIC conceded that its proposed second amended
complaint, which incorporates Doral’s complaint, includes claims that have
previously been dismissed by this Court for the sole purpose of preserving them
for appeal. Tr. 34:16-25. Furthermore, the FDIC confirmed that it was not
asserting the claims anew by adding Doral as one of the plaintiffs in its
consolidated complaint.
84
misrepresentation claim is fully time-barred, while its fraud,
tortious interference, and related aiding and abetting claims are
time-barred insofar as they accrued on or before February 26, 2009.
The parties’ dispute centers on the proper accrual date for
Doral’s claims. 92
Relying on LIBOR V, in which we considered the
timeliness of the claims asserted by the Government Development
Bank for Puerto Rico (GDB), defendants argue that Doral, like GDB,
was on inquiry notice of its state law claims no later than May
29, 2008.
See Defs.’ Joint MTD Br., at 23-26.
Thus, Doral’s
claims accrued on May 29, 2008, and the one-year limitations period
expired on May 29, 2009.
See Defs.’ Joint MTD Reply, at 21-22.
Doral claims that, since this Court found Puerto Rico to be a “weak
inquiry notice” jurisdiction in which it would have taken one year
for “a sophisticated investor to discover that he had been injured
by the panel banks’ LIBOR suppression,” LIBOR IV, 2015 WL 6243526,
at *135, Doral’s claims did not accrue until May 29, 2009, and the
92
The parties agree that Puerto Rico’s one-year statute of limitations
applies to Doral’s tort claims. See Pls.’ Joint Non-PJ Br., at 12 (applying
Puerto Rico’s one-year statute of limitations); Defs.’ Joint MTD Br., at 23
(same); see also Rodriguez-Suris, 123 F.3d at 13 (“The Puerto Rico statute of
limitations for tort actions provides for a one-year limitation period that
begins to run from ‘the time the aggrieved person has knowledge of the injury.’”
(quoting 31 P.R. Laws Ann. tit. 31, § 5298)).
The one-year statute of
limitations also applies to Doral’s aiding and abetting claims because the
claims are “actions to demand civil liability.”
See id.
In addition, as
defendants correctly point out, Doral’s implied covenant of good faith and fair
dealing and unjust enrichment claims are subject to the one-year statute of
limitations applicable to tort claims because the claims are not based on an
alleged breach of an obligation that was agreed upon between Doral and
defendants. See Ramos Lozada v. Orientalist Rattan Furniture Inc., No. RE-8867, 1992 WL 755597, at *10-11 (P.R. June 15, 1992).
85
one-year limitations period did not expire until May 29, 2010.
See Pls.’ Joint Non-PJ Br., at 12.
Doral’s premise that we found Puerto Rico to be a “weak
inquiry notice” jurisdiction is simply incorrect. Rather, in LIBOR
IV,
we
simply
assumed
(without
deciding)
“in
the
absence
of
specific contrary briefing on the discovery rules of each bank’s
home
state
.
.
.
that
each
of
the
remaining
jurisdictions
[including Puerto Rico] would also apply the plaintiff-friendly
‘weak inquiry notice’ rule.”
2015 WL 6243526, at *167.
We made
the same assumption in LIBOR V because GDB’s claims were timebarred even under the “weak inquiry notice” rule. 2015 WL 6696407,
at *12.
However, after reviewing applicable precedents, we now
find that Puerto Rico has a “strong inquiry notice” rule, under
which the statute of limitations begins to run on the inquiry
notice date.
See, e.g., Arturet-Velez v. R.J. Reynolds Tobacco
Co., 429 F.3d 10, 14 (1st Cir. 2005) (holding that, under Puerto
Rico law, the running of the one-year statute of limitations for
tort actions “does not require actual knowledge; it is enough that
the would-be plaintiff had notice that would have led a reasonable
person to investigate and so uncover the needed information”); see
also Rodriguez-Suris, 123 F.3d at 16. 93
93 The one-year statute of limitations may be tolled by: “(1) judicial
proceedings, (2) extra-judicial claims, and (3) acknowledgment of the debt by
the person liable.” Bryan v. Wal-Mart Puerto Rico, Inc., 951 F. Supp. 2d 236,
240 (D.P.R. 2013). However, “tolling acts must be interpreted restrictively
86
In addition to making an erroneous argument that Puerto Rico
is a “weak inquiry notice” jurisdiction, Doral asserts that it was
not on inquiry notice until October 2011, the proposed extended
date of the alleged conspiracy’s termination based on the 2017
Société Générale regulatory disclosures.
Apart from our rejection
of FFP plaintiffs’ attempt to expand the time period of the alleged
conspiracy based on the same regulatory disclosures, see supra
Part III.3.3, we do not see any connection between inquiry notice
and the length of the alleged conspiracy.
Thus, we see no reason
to change our LIBOR V ruling that financial institutions holding
LIBOR-based instruments in Puerto Rico, such as Doral, were on
inquiry notice by May 29, 2008, because they had “every reason to
follow news about LIBOR.”
2015 WL 6696407, at *12.
Accordingly,
any claim that is based on defendants’ conduct on or before May
29, 2008, expired on May 29, 2009.
Since Doral’s claims are brought by the FDIC, they implicate
the FDIC’s extender statute, 12 U.S.C. § 1821(d)(14) (2013), which
contains a provision that revives any tort claim 94 for which the
limitations
appointment.
period
expired
within
five
years
See 2015 WL 6243526, at *121.
of
the
Therefore, Doral’s
against the party invoking their protection.” Rodriguez Narvaez
895 F.2d 38, 45 (1st Cir. 1990).
94 The provision defines a tort claim as “a claim arising
intentional misconduct resulting in unjust enrichment, or
misconduct resulting in substantial loss to the institution.”
1821(d)(14)(C)(ii).
87
FDIC’s
v. Nazario,
from fraud,
intentional
12 U.S.C §
fraud, tortious interference, and related aiding and abetting
claims are revived to the extent that the limitations period
expired within five years of February 27, 2015, the date that the
FDIC was appointed as receiver.
See Doral Compl. ¶ 15.
Applying
the one-year statute of limitations for fraud claims, we find that
any fraud or tortious interference claim based on defendants’
conduct on or before February 26, 2009 are time-barred. 95
the
provision
does
not
apply
to
negligent
Since
misrepresentation
claims, see LIBOR IV, 2015 WL 6243526, at *121, and Doral alleges
misconduct
occurring
from
August
2007
to
May
2010,
Doral’s
negligent misrepresentation claim should have been brought by May
2011 at the latest and is thus fully time-barred.
5.2. Donnelly Act Claim
Although Doral has no presence in New York, it asserts a state
antitrust claim 96 against defendants under the Donnelly Act, which
prohibits agreements for monopoly or in restraint of trade “in the
conduct of any business, trade or commerce or in the furnishing of
any service” in New York.
N.Y. Gen. Bus. Law § 340(1).
95 Thus, Doral’s claims based on defendants’ conduct on or before the
inquiry notice date cannot be revived because they expired on May 29, 2009,
which is before February 27, 2010.
96 Doral asserts that we upheld the FDIC’s Donnelly claims in LIBOR VI.
See Pls.’ Joint Non-PJ Br., at 18.
Doral’s reading of LIBOR VI is deeply
flawed.
We found that the same analytical framework could be used to assess
both Sherman Act and Donnelly Act claims, see LIBOR VI, 2016 WL 7378980, at
*24, but we never considered the merits of the FDIC’s Donnelly claims. As a
matter of fact, we found that defendants had “properly preserved their request
to move for dismissal on other bases,” which we now consider. Id. at *1.
88
Defendants argue that we should dismiss the claim based on
federal preemption grounds.
The New York Court of Appeals has not
specifically determined when the Sherman Act preempts the Donnelly
Act.
See Conergy AG v. MEMC Elec. Materials, Inc., 651 F. Supp.
2d 51, 58 (S.D.N.Y. 2009).
that
“[w]here
interstate
the
But lower courts in New York have found
conduct
commerce,
with
complained
little
or
of
no
principally
impact
on
affects
local
or
intrastate commerce, it is clear that Federal antitrust laws
operate to preempt the field.”
Two Queens, Inc. v. Scoza, 745
N.Y.S.2d 517, 519 (1st Dep’t 2002).
And federal courts have
similarly recognized that a viable Donnelly Act claim requires “an
impact on intrastate commerce so as to avoid a dormant Commerce
Clause issue.”
In re Digital Music Antitrust Litig., 812 F. Supp.
2d 390, 416 (S.D.N.Y. 2011).
Doral
argues
that
its
complaint
is
“replete
with
(presumptively true) allegations that show [a] sufficient impact
on local or intrastate commerce.”
Pls.’ Joint Non-PJ Br., at 19.
However, none of Doral’s allegations makes the requisite showing.
The
allegations
of
defendants’
transactions
of
LIBOR-based
instruments, transmission of individual LIBOR submissions, and
acts of concealment have nothing to do with the pled conspiracy.
See supra Part III.2.4.
Nor do the allegations that defendants
owned property in New York and acceded to New York choice of law
and forum selection clauses lend any support to Doral’s argument.
89
See, e.g., H-Quotient, Inc. v. Knight Trading Grp., Inc., No. 03cv-5889 (DAB), 2005 WL 323750, at *5 (S.D.N.Y. Feb. 9, 2005)
(holding that plaintiffs’ allegation that defendants’ principal
places of business were in New York was not sufficient to establish
an impact on intrastate commerce); Conergy, 651 F. Supp. 2d at 61
(holding that choice of law and forum selection clauses do not
demonstrate an impact on intrastate commerce).
Since
Doral
fails
to
plausibly
allege
that
defendants’
conduct had a sufficient impact on New York commerce, we dismiss
its Donnelly Act claim.
5.3. Sherman Act Claims
Defendants move to dismiss Doral’s Sherman Act claims that
are based on: (1) transactions with non-defendant third parties as
Counterparties;
subsidiaries
(2)
and
transactions
affiliates
with
(i.e.,
Panel
Bank
instruments
defendants’
issued
by
the
subsidiaries and affiliates); and (3) transactions in which Doral
purchased instruments issued by Panel Bank defendants and sold by
their subsidiaries and affiliates. Based on our LIBOR VI decision,
we dismiss Doral’s claims based on transactions with non-defendant
third parties.
Furthermore, as discussed in Part V, we dismiss
antitrust claims based on instruments issued by Panel Banks’
subsidiaries and affiliates, and we circumscribe claims based on
instruments issued by Panel Bank defendants and sold by their
subsidiaries and affiliates.
90
V. Defendants’ Motion for Judgment on the Pleadings
Bank of America, N.A. and JPMorgan Chase Bank, N.A. - the
only remaining Panel Bank defendants in OTC plaintiffs’ antitrust
claims after our LIBOR VII decision 97 - move for partial judgment
on the pleadings under the Federal Rule of Civil Procedure 12(c)
as to OTC plaintiffs’ claims that are based on transactions with
Panel Banks’ subsidiaries or affiliates.
In LIBOR VI, we employed, consistent with Gelboim, the fourfactor analysis outlined by the Supreme Court in Associated General
Contractors of California, Inc. v. California State Council of
Carpenters (“AGC”), 459 U.S. 519, 540–45 (1983), for determining
whether a plaintiff has antitrust standing. 98
After conducting a
highly fact-specific inquiry, we drew “a line between plaintiffs
who transacted directly with defendants and those who did not,”
LIBOR VI, 2016 WL 7378980, at *16, and found that plaintiffs who
97
In LIBOR VI, we granted defendants’ motion to dismiss certain defendants
for lack of personal jurisdiction as to antitrust claims. The only remaining
defendants after LIBOR VI with respect to OTC plaintiffs’ antitrust claims were:
Bank of America Corp.; Bank of America, N.A.; Citigroup, Inc.; Citibank, N.A.;
JPMorgan Chase & Co.; and JPMorgan Chase Bank, N.A. See 2016 WL 7378980, at
app. In LIBOR VII, we certified a class limited to OTC plaintiffs’ antitrust
claims against Bank of America, JPMorgan Chase, and their parent entities
because Citibank, N.A. and Citigroup, Inc. had reached a settlement with OTC
plaintiffs. See 299 F. Supp. 3d at 582, 607. After LIBOR VII, Bank of America
and JPMorgan Chase filed a motion for leave to appeal under Rule 23(f), which
the Second Circuit denied. See In re LIBOR-Based Fin. Instruments Antitrust
Litig., No. 18-728, Doc. No. 84 (2d Cir. Nov. 6, 2018).
98
“The four efficient enforcer factors are: (1) the directness or
indirectness of the asserted injury, which requires evaluation of the chain of
causation linking appellants’ asserted injury and the Banks’ alleged pricefixing; (2) the existence of more direct victims of the alleged conspiracy; (3)
the extent to which appellants’ damages claim is highly speculative; and (4)
the importance of avoiding either the risk of duplicate recoveries on the one
hand, or the danger of complex apportionment of damages on the other.” Gelboim,
823 F.3d at 778 (citation and internal quotation marks omitted).
91
transacted with third party banks did not satisfy the first factor
(“directness or indirectness of the asserted injury”) of the AGC
analysis.
We reasoned that defendants could not be held liable
for an independent decision by a plaintiff and a third party to
incorporate LIBOR into financial transactions because the decision
“breaks the chain of causation between defendants’ actions and a
plaintiff’s injury.”
Id.
However, LIBOR VI did not resolve the question of whether a
plaintiff “who transacted with a subsidiary or affiliate of a panel
bank” could be considered as an efficient enforcer.
n.25.
Id. at *16
We reserved our ruling on that question and instructed the
parties to consider it “at the class certification stage.” Id.
Instead of addressing the issue in their class certification
briefing in LIBOR VII, moving defendants waited until now to move
for dismissal of OTC plaintiffs’ claims concerning transactions
with defendants’ subsidiaries or affiliates.
Specifically, moving
defendants now assert that OTC plaintiffs lack antitrust standing
to bring claims that are based on: 1) instruments issued and sold
only by Panel Banks’ subsidiaries or affiliates; 2) instruments
issued by Panel Banks’ subsidiaries or affiliates but sold by Panel
Banks; and 3) instruments issued by Panel Banks but sold by their
affiliates or subsidiaries.
We grant moving defendants’ motion as to the first two of
these groups of claims. While we deny the motion as to the third
92
group of claims, those claims are circumscribed as set forth below.
In considering the motion, we focus primarily on the first factor
of the AGC test – directness of the asserted injury - because our
analysis of the other three other factors would be substantially
the same as it was in LIBOR VI. 99
1.
General Legal Standard for Judgment on Pleadings
A motion under Rule 12(c) is subject to the same standard
that applies to a motion under Rule 12(b)(6).
See Cleveland v.
Caplaw Enters., 448 F.3d 518, 521 (2d Cir. 2006).
Under that
standard, a court “must accept as true the complaint's factual
allegations and draw all inferences in favor of the non-movant.
A
complaint should not be dismissed unless it appears beyond doubt
that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.”
Id. (citations and
internal quotation marks omitted).
We must also generally confine ourselves to the four corners
of
the
complaint
therein.
and
look
only
to
the
allegations
contained
(CM)(DCF),
See, e.g., Williams v. City of New York, No. 10-cv-9594
2012
WL
547508,
at
*2
(S.D.N.Y.
Feb.
17,
2012).
“[W]hen matters outside the pleadings are presented in response to
a 12(b)(6) motion,” a district court must either “exclude the
additional material and decide the motion on the complaint alone”
99
We found that none of the other three AGC factors militated in favor
of dismissing OTC plaintiffs’ claims in LIBOR VI. See 2016 WL 7378980, at *1720, *23.
93
or “convert the motion to one for summary judgment under Fed. R.
Civ. P. 56 and afford all parties the opportunity to present
supporting material.”
Towers
Condominium,
Fonte v. Board of Managers of Continental
848
F.2d
24,
25
(2d
Cir.
1988).
This
conversion requirement is strictly enforced. See Amaker v. Weiner,
179 F.3d 48, 50 (2d Cir. 1999).
2.
Instruments Issued by Panel Bank Defendants’
Subsidiaries/Affiliates
Moving defendants argue that OTC plaintiffs lack standing to
bring
claims
subsidiaries
based
or
on
instruments
affiliates 100
issued
by
Panel
there
is
no
because
Banks’
plausible
allegation that the issuing entities “played a role in [the]
alleged suppression of LIBOR.”
LIBOR VI, 2016 WL 7378980, at *10
(quoting Mem. & Order, 2016 WL 1733463, at *3 (S.D.N.Y. Apr. 29,
2016),
ECF
No.
1396).
According
to
defendants,
since
the
subsidiaries or affiliates did not participate in the alleged
manipulation of LIBOR, their independent decisions to incorporate
LIBOR into financial instruments break “the chain of causation
between defendants’ actions and a plaintiff’s injury.”
*16.
Id. at
We agree.
100 Based on defendants’ definitions, these instruments could have been
sold by: (1) the issuing entity; (2) another subsidiary or affiliate that is
related to the issuing entity; or (3) the Panel Bank that is related to the
issuing entity.
See Mem. of Law in Supp. of Defs.’ Mot. for Partial J. on
Pleadings (“Defs.’ OTC Br.”), ECF No. 2621, at 2, 4.
94
OTC plaintiffs’ attempt to rebut defendants’ argument by
conclusorily
alleging
that
“every
panel
bank
belonged
to
an
integrated global enterprise that actively managed its interest
rate risk, including LIBOR” is unavailing.
OTC Pls.’ Mem. of Law
in Opp. to Defs.’ Mot. for Judgment on Pleadings (“Pls.’ OTC Br.”),
ECF No. 2669, at 3.
They rely on annual reports published by Panel
Banks’ parent entities and argue that “the treasury or asset and
liability management functions of the main bank” worked with
different affiliated entities to “coordinate LIBOR submissions”
and ensure that “customer-facing business segments did not sell
(or even offer) financial instruments with interest rates above
that of the bank’s LIBOR submissions.”
exhibits
were
neither
attached
to
Id. at 3-4.
nor
As these
incorporated
into
plaintiffs’ complaint, we need not consider them in deciding the
instant motion. 101
In any event, the exhibits do not demonstrate
that Panel Banks directed their subsidiaries or affiliates to use
LIBOR in their issuance of financial instruments.
Plaintiffs try to overcome their pleading deficiencies by
advancing the “single enterprise” theory adopted by the Supreme
Court in Copperweld Corp. v. Independent Tube Corp., 467 U.S. 752
(1984).
In Copperweld, the Supreme Court considered whether a
wholly owned subsidiary is capable of conspiring with its parent
101
OTC plaintiffs submitted more than 140 extrinsic exhibits in support
of their opposition to moving defendants’ motion.
See ECF Nos. 2684, 2685,
2686.
95
company for purposes of violating § 1 of the Sherman Act.
Since
“[a] parent and its wholly owned subsidiary have a complete unity
of interest,” the Court held that “the coordinated activity of a
parent and its wholly owned subsidiary must be viewed as that of
a single enterprise”
Id. at 771 (emphasis added).
Thus, the Court
reasoned, a parent company and its wholly owned subsidiary “are
incapable of conspiring with each other for purposes of § 1 of the
Sherman Act.” 102
Id. at 777.
The Ninth Circuit recently adopted a corollary of the “single
enterprise”
theory
in
Arandell
Corp.
v.
Centerpoint
Services, Inc., 900 F.3d 623 (9th Cir. 2018).
Energy
In Arandell, the
Ninth Circuit considered a case in which a natural gas company and
other natural gas conglomerates conspired to fix retail natural
gas prices.
Id. at 628.
The company’s subsidiaries allegedly
actively engaged in “coordinated price-fixing efforts” to further
the company’s price-fixing scheme. The court held that, since a
parent company and its subsidiary “always have a ‘unity of purpose’
and act as a ‘single entity’ whenever they engage in ‘coordinated
activity,’” the subsidiaries were “deemed to have shared the intent
of” their parent company because “it is legally impossible for
firms with a single ‘economic unit’ to act together in furtherance
102 Although Copperweld addressed the relationship between a parent company
and its wholly owned subsidiary, “[l]ower courts have since applied Copperweld’s
reasoning . . . to a broader variety of economic relationships.” Jack Russell
Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 1034 (9th
Cir. 2005).
96
of the same [conspiracy] for independent and distinct purposes.”
Id. at 630-31; see also Lenox MacLaren Surgical Corp. v. Medtronic,
Inc., 847 F.3d 1221, 1236-39 (10th Cir. 2017).
Applying the rationale from Copperweld and Arandell, OTC
plaintiffs argue that they have standing to assert antitrust claims
against
Panel
Bank
defendants
because
a
Panel
Bank
and
its
subsidiaries and affiliates are part of a “single enterprise” that
participated in the alleged conspiracy to manipulate LIBOR.
OTC Br., at 7.
Pls.
Panel Banks’ subsidiaries and affiliates are
“guilty of selling price-fixed instruments to the OTC Class while
sharing their profits with the price-fixing panel bank,” and since
a Panel Bank and its affiliated entities can be deemed to have
shared
the
anticompetitive
intent,
Panel
Banks
are
“directly
responsible for price-fixed products sold by their subsidiaries
and affiliates.”
See id.
What is missing from OTC plaintiffs’ argument, however, is an
allegation of any “coordinated activity” between a Panel Bank and
its
subsidiaries
and
affiliates.
Under
Copperweld,
only
a
“coordinated activity” of related entities can be viewed as that
of a single enterprise.
See, e.g., Mitchael v. Intracorp, Inc.,
179 F.3d 847, 857 (10th Cir. 1999) (finding that the Supreme Court
held
“only
that
‘the
coordinated
activity’
of
a
parent
and
subsidiary must be viewed as that of a single enterprise for § 1
purposes”) (emphasis in original)).
97
This understanding is further
supported by the cases on which OTC plaintiffs themselves rely.
See Arandell, 900 F.3d at 632 (holding that, based on plaintiffs’
specific factual allegations 103 of “coordinated activity” between
a
parent
company
anticompetitive
and
its
purpose”
subsidiary,
that
could
the
give
subsidiary
rise
to
“had
an
antitrust
liability “with or without an additional finding of knowledge”
(citations omitted)); Lenox MacLaren, 847 F.3d at 1237 (holding
that, in order to apply the “single enterprise” theory, a plaintiff
must “come forward with evidence that each defendant independently
participated in the enterprise’s scheme, to justify holding that
defendant liable as part of the enterprise”). 104
At oral argument, OTC plaintiffs argued that the sale of
instruments by the subsidiaries and affiliates constitutes such
“coordinated activity.”
Tr. 47:15 – 48:14.
This argument might
make sense if the conspiracy were based on profit motives.
103
But as
Plaintiffs alleged that each subsidiary entity “played a necessary
role” in the price-fixing scheme by inflating “retail natural gas prices through
manipulative trading,” selling gas at inflated prices to its sister subsidiary
entity, reselling the gas at inflated prices to other businesses, and
“funnel[ing] the revenues from these sales” to the parent company. Arandell,
900 F.3d at 628. Plaintiffs also alleged that the parent company’s officers
and directors orchestrated the scheme, directing the subsidiaries “to manipulate
retail prices” and “to send its illegal profits” to the parent company. Id.
104 We recognize that the antitrust claims in Arandell and Lenox MacLaren
were dismissed at the summary judgment stage.
However, applying the legal
standards applicable to a Rule 12(c) motion, we find here that OTC plaintiffs
have not plausibly alleged any coordinated activity between Panel Bank
defendants and their subsidiaries and affiliates.
Furthermore, unlike most
litigations at the motion to dismiss stage, OTC plaintiffs have received access
to a considerable amount of discovery materials, including “disclosures
previously made to governmental authorities.”
Jun. 17, 2016 Order, ECF No.
1461. Specifically, OTC counsel acknowledges that they reviewed “more than 1.5
million documents produced by the defendants and third parties” during the
course of spending “over 52,000 hours prosecuting this case.” OTC Pls. Mem.
Law in Supp. of Mot. Atty. Fees, ECF No. 2705, at 14.
98
the Second Circuit held in Schwab, the pled conspiracy “had nothing
to do with” the sale of LIBOR-based instruments.
The
independent
affiliates
to
decision
sell
of
Panel
LIBOR-based
Banks’
financial
883 F.3d at 87.
subsidiaries
instruments
did
and
not
further the plausibly pled conspiracy, the main objective of which
was achieved when Panel Banks submitted allegedly suppressed LIBOR
submissions. 105
Given that OTC plaintiffs’ complaint does not
contain any factual allegations that give rise to the inference
that
Panel
Banks’
subsidiaries
and
affiliates
“independently
participated in” the alleged manipulation of LIBOR manipulation,
Lenox MacLaren, 847 F.3d at 1237, or actually “played a role in”
the scheme, LIBOR VI, 2016 WL 7378980, at *10, we find that OTC
plaintiffs
lack
antitrust
standing
to
bring
claims
based
on
instruments issued by Panel Banks’ subsidiaries or affiliates.
3.
Instruments Issued by Panel Banks but Sold by Their
Related or Unrelated Subsidiaries/Affiliates
Moving defendants assert that OTC plaintiffs are barred from
asserting claims based on instruments issued by a Panel Bank but
sold by its subsidiaries or affiliates under the “direct purchaser”
rule of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
Under Illinois Brick, a “direct purchaser” is a plaintiff who
purchased
an
allegedly
price-fixed
alleged co-conspirator defendant.
105
product
directly
See id. at 728-29.
from
an
The Supreme
The universality of the use of LIBOR also undermines the significance
of its use as evidence of “coordinated activity.”
99
Court laid the groundwork for the “direct purchaser” rule in
Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481
(1968), in which the defendant, a manufacturer of shoe-making
machinery, was accused of driving up the price of the machinery.
The defendant argued that the plaintiff, a shoe seller that leased
the defendant’s machines, had not suffered any injury from these
inflated prices because the plaintiff had passed the overcharge on
to its own customers by selling its shoes at higher prices.
The
Supreme Court “rejected as a matter of law this defense that
indirect rather than direct purchasers were the parties injured by
the
antitrust
violation.”
Illinois
Brick,
(summarizing the holding in Hanover Shoe).
that
adopting
such
a
theory
as
a
viable
431
U.S.
at
724
The Court reasoned
defense
against
an
antitrust suit would force courts to consider a wide range of
market-based factors that could potentially influence a company’s
pricing policies.
Id. at 492-93.
While the defendants in Hanover Shoe fashioned this “passon” theory as a shield to defend against antitrust suits, the
plaintiffs in Illinois Brick sought to use it as a sword, arguing
that
they
had
antitrust
standing
to
sue
concrete
block
manufacturers and distributers who allegedly conspired to fix the
price of concrete block even though they had not purchased the
block directly from the alleged price-fixers.
726-27.
See 431 U.S. at
The Court held that, since a defendant in an antitrust
100
lawsuit could not use the “pass-on” theory to claim that a direct
purchaser
suffered
no
loss
or
injury,
an
indirect-purchaser
plaintiff could not use the same theory to claim damages for an
overcharge that was allegedly passed on from the defendant, through
intermediaries, to the plaintiff.
Id. at 730.
According to the
Court, the “evidentiary complexities and uncertainties” discussed
in Hanover Shoe would be multiplied if a plaintiff who is “several
steps removed from the defendant in the chain of distribution”
could claim an injury for an overcharge allegedly caused by that
defendant.
While
Id. at 732.
the
Court
in
Illinois
Brick
held
that
indirect
purchasers generally do not have antitrust standing, it suggested
in a footnote an exception to that rule whereby indirect purchasers
who “owned or controlled” the direct purchaser may be permitted to
sue.
“is
431 U.S. at 736 n.16.
now
firmly
established
This “ownership or control” exception
and
has
been
expanded
to
include
instances where the defendant owns or controls the intermediary
that sold the goods to the indirect-purchaser plaintiff.”
In re
Vitamin C Antitrust Litig., 279 F.R.D. 90, 101 (S.D.N.Y. 2012).
Plaintiffs using this exception, however, “may not rely simply on
the existence of a parent-subsidiary relationship,” Vitamin C, 279
F.R.D. at 102; they must present facts that the relationship
between
the
defendant
and
the
intermediary
“involve[s]
such
functional economic or other unity that there effectively has been
101
only one sale” between the defendant and the indirect purchaser.
In re Microsoft Antitrust Litigation, 127 F. Supp. 2d 702, 713 (D.
Md. 2001) (alterations omitted) (quoting Jewish Hosp. Ass'n v.
Stewart Mech. Enters. Inc., 628 F.2d 971, 975 (6th Cir. 1980));
see also In re NASDAQ Mkt.-Makers Antitrust Litig., 169 F.R.D.
493, 505 (S.D.N.Y. 1996) (“[W]here a particular industry structure
includes a principal-agent relationship between the indirect and
direct purchasers such that the two are not distinct economic
entities
in
the
purchase
chain,
the
indirect
purchaser
has
antitrust standing under Illinois Brick.”).
OTC plaintiffs assert that the “direct purchaser” rule is not
(as defendants argue) dispositive here because the instruments
that OTC plaintiffs purchased are not like the price-fixed goods
at issue in Illinois Brick and Hanover Shoe, which raised concerns
about “duplicative recovery by upstream and downstream purchases
of the same price-fixed good.”
Pls.’ OTC Br., at 8. 106
Rather,
OTC plaintiffs purchased securities from which “no two OTC Class
106 Defendants argue that the same double recovery issue may also exist in
transactions in which OTC plaintiffs purchased and resold the instruments during
the suppression period. Reply Mem. of Law in Supp. of Defs.’ Mot. for Partial
Judgment on Pleadings, ECF No. 2703, at 5. This argument fails for two reasons.
First, a party that purchased an instrument from an OTC plaintiff would not
have antitrust standing because the party would fail to meet the fourth factor
of the AGC test. See LIBOR VI, 2016 WL 7378980, at *23 (finding that, under
the fourth factor, “courts are traditionally concerned with the prospect of
different groups of plaintiffs attempting to recover for the same exact
injury”).
Second, a defensive use of the “pass-on” theory was rejected in
Hanover Shoe and has no bearing on the determination of OTC plaintiffs’
antitrust standing. See 392 U.S. at 492-93.
102
members ever received the same suppressed interest payment.” 107
Id.
Courts in this District recognize the distinction made by OTC
plaintiffs.
For
transactions
example,
involving
in
brokers,
cases
addressing
plaintiffs
have
securities
advanced
the
argument that, “as a matter of law, securities brokers are not
distinct
economic
entities;
rather,
as
statutorily
defined,
brokers buy or sell ‘for the account of others,’ not for their own
accounts.”
NASDAQ, 169 F.R.D. at 505 (quoting 15 U.S.C. § 78c).
The NASDAQ court held that the viability of this argument “turns
on the scope of the brokers’ role in relation to the transaction
at issue.”
Id.
If the brokers’ purchase of a security is “itself
the ultimate service provided to the investor,” then they “do not
constitute a distinct link in the chain of distribution” and
investors
who
transacted
with
the
purchasers” with antitrust standing.
brokers
were
thus
“direct
Id. at 506.
In their complaint, OTC plaintiffs do not provide enough
information about their transactions to permit us to determine the
exact role that Panel Banks’ subsidiaries and affiliates played.
However,
based
on
this
District’s
precedents,
we
find
that
plaintiffs’ antitrust standing extends only to claims based on
107 OTC plaintiffs define the securities at issue to include “an interest
rate swap or bond/floating rate note that includes any term, provision,
obligation or right for the purchaser or counterparty to be paid interest by a
Panel Bank (or a Panel Bank’s subsidiaries or affiliates) based upon the 1 month
or 3 month U.S. dollar LIBOR rate).” OTC Pls.’ Compl., ECF No. 1857, ¶ 44.
103
purchases of Panel Bank-issued, LIBOR-based instruments 108 from
Panel
Banks’
subsidiaries
and
affiliates
transactions “for the account of others.”
that
effectuated
15 U.S.C. § 78c.
In
other words, if the subsidiaries and affiliates played the role of
a broker by simply “execut[ing] the purchases and sales requested
by”
OTC
plaintiffs
standing attaches.
for
panel
bank
issuances,
then
antitrust
NASDAQ, 169 F.R.D. at 506.
VI. Conclusion
The
motions
for
leave
to
amend
brought
by
Freddie
Mac,
Principal, the FDIC, and the NCUA are granted in part and denied
in part.
Lender plaintiffs’ motion for leave to amend is denied.
Moving plaintiffs are ordered to file their amended complaints in
accordance with our rulings in this opinion by April 16, 2019.
Defendants’ motion for partial dismissal of Schwab’s and
Doral’s claims is granted in part and denied in part.
As agreed
upon by the FDIC and defendants, Doral’s surviving claims will be
incorporated into the amended complaint filed by the FDIC on behalf
of the 38 other failed banks.
108 Presumably, this ruling does not have any impact on the antitrust
standing of OTC plaintiffs who purchased interest rate swaps from defendants,
since swap agreements are “bespoke” contracts executed directly between two
parties.
104
The motion for partial judgment on OTC plaintiffs' pleadings
brought by Bank of America, N.A. and JPMorgan Chase Bank, N.A. is
granted in part and denied in part.
This
Memorandum and Order
resolves
the
motions
listed
at
docket entries 2544, 2546, 2551, 2552, 2562, 2563, 2620, and 2622.
SO ORDERED.
Dated:
New York, New York
March ct.r, 2019
L:22~~(
NAOMI REICE BUCHWALD
~/~
UNITED STATES DISTRICT JUDGE
105
APPENDIX
This Memorandum and Order resolves the following docket entries in
the following cases:
CASE NAME
CASE NO.
ECF No.
In re Libor-Based Financial
Instruments Antitrust Litigation
11-md-2262
2544
2546
2551
2552
2562
2563
2620
2622
Mayor & City Council of Baltimore v.
Credit Suisse Group AG
11-cv-5450
432
Berkshire Bank v. Bank of America
Corp.
12-cv-5723
327
Federal Home Loan Mortgage Corp. v.
Bank of America Corp.
13-cv-3952
293
Principal Financial Group, Inc. v.
Bank of America Corp.
15-cv-9792
58
Principal Funds, Inc. v. Bank of
America Corp.
15-cv-9793
52
Charles Schwab Corp. v. Bank of
America Corp.
13-cv-7005
286
National Credit Union Administration
Board v. Credit Suisse Group AG
13-cv-7394
244
Federal Deposit Insurance Co. v. Bank
of America Corp.
14-cv-1757
251
Federal Deposit Insurance Co. v. Bank
of America, N.A.
18-cv-1540
56
106
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