On March 29, 2013, in a ruling that she acknowledged some
might find to be "unexpected" in light of the substantial regulatory fines and
penalties that some of the defendants have paid, Southern District of New York Naomi Reice Buchwald
granted the defendants' motions to dismiss the antitrust and RICO claims in the
consolidated LIBOR-based antitrust litigation. Judge Buchwald also dismissed
the plaintiffs' state law claims and some of the plaintiffs' commodities
manipulation claims. However, she denied the defendants' motions to dismiss at
least a portion of the plaintiffs' commodities manipulation claims. A copy of Judge
Buchwald's massive 161-page opinion can be found here.
As detailed here,
the consolidated litigation arises out of allegations that the banks involved
with setting the Libor benchmark interest rate conspired to manipulate the
benchmark. The plaintiffs - several municipalities, commodities traders and
investors, bondholders and the Schwab financial firm, among many others -
variously allege that suppression of the Libor benchmark reduced the amount of
interest income they earned on various financial instruments. The various cases
were consolidated before Judge Buchwald. The defendants moved to dismiss.
In her March 29 Opinion, Judge Buchwald granted the
defendants' motions to dismiss as to all of plaintiffs' claims, except for a
portion of the plaintiffs' commodities manipulations claims. All of the
dismissals were with prejudice, except for her dismissal of plaintiffs' state
law claims, over which she declined to exercise supplemental jurisdiction and
therefore she dismissed the state law claims without prejudice.
First, she dismissed the plaintiffs' antitrust claims
because the plaintiffs failed to allege an antitrust injury and therefore
lacked standing to assert antitrust claims. In order to bring an antitrust
claim, a plaintiff "must demonstrate not only that it suffered injury and that
the injury resulted from defendants' conduct, but also that the injury resulted
from the anticompetitive nature of the defendants' conduct." Judge Buchwald
found that "the alleged collusion occurred in an arena in which defendants
never did and never were intended to compete." Though the defendants allegedly
"agreed to lie about the interest rates they were paying," this presents
allegations "of misrepresentation, and possibly fraud, not of failure to
She added that "the process by which banks submit LIBOR
quotes to the BBA is not itself competitive, and plaintiffs have not alleged
that defendants' conduct had an anticompetitive effect in any market in which
Second, Judge Buchwald denied the defendants' motions to
dismiss the commodities manipulation claims that had been raised by the
so-called "Exchange-Based Plaintiffs," who claimed that the defendants had
manipulated Eurodollar futures contracts in violation of the Commodities
Exchange Act. She found that the plaintiffs had adequately pled the
manipulation claims - although she noted that she has "doubts about whether
plaintiffs will ultimately be able to demonstrate that they sold or settled
their Eurodollar contracts at a loss as a result of defendants' conduct."
However, she found that, because press coverage in early 2008 had loudly raise
concerns about problems with Libor, the plaintiffs were on inquiry notice about
possible claims in May 2008. She concluded that the plaintiffs' claims based on
contracts entered before May 29, 2008 are time-barred. She raised a concern
that claims based on contracts entered between May 29, 2008 and April 15, 2009
(two years before the plaintiffs filed their complaint) may also be time-barred
but she declined to dismiss those claims at this point.
Third, in reliance on the PSLRA amendments to RICO, Judge
Buchwald granted the defendants' motion to dismiss the plaintiffs' RICO claim.
The PSLRA bars plaintiffs from bringing a RICO claim based on predicate acts
that could have been subject to a securities fraud action. Judge Buchwald
concluded that the alleged wrongful acts underlying the RICO claims could have
been the subject of a claim for securities fraud. She also found that the RICO
claims were barred in any event as they impermissibly seek extraterritorial
application of U.S. law; RICO applies only domestically, "meaning that the
alleged 'enterprise' must be a domestic enterprise," whereas here the "enterprise
alleged by plaintiffs is based in England."
Finally, Judge Buchwald dismissed all of the plaintiffs'
state law claims. She dismissed the plaintiffs' state law antitrust claims with
prejudice on the same grounds on which she had granted the motions to dismiss
the plaintiffs' claims based on federal antitrust law. She declined to exercise
supplemental jurisdiction over the plaintiffs' remaining state law claims,
which she dismissed without prejudice.
In concluding her massive opinion, Judge Buchwald noted
that "it might be unexpected that we are dismissing a substantial portion of
plaintiffs' claims," given the massive regulatory settlements that several of
the defendants have entered. These results, she said, are "not as incongruous
as they appear," noting that under the statutes invoked here, "there are many
requirements that private plaintiffs must satisfy, but which government
agencies need not." The focuses of public and private enforcement differ, and
"the broad public interest behind the statutes invoked here, such as integrity
of the markets and competition, are being addressed by ongoing government
She added that the "private actions which seek damages
and attorney's fees must be examined closely to ensure that the plaintiffs who
are suing are the ones properly entitled to recover and that the suit is, I
fact serving the public purposes of the laws being invoked." Although she is
"fully cognizant" that several defendants have entered massive settlements, "we
find that only some of the claims that plaintiffs have asserted may properly
As a result of Judge Buchwald's rulings, only a small
portion of some of the claimants' claims will go forward. Only the claimants
who asserted commodities manipulation in connection with exchange-based
transaction have continuing claims, and then only a portion of those claims.
All of the many other plaintiffs' claims have been entirely dismissed.
These plaintiffs can of course try to pursue their state law claims - which
were dismissed without prejudice -- in state court; they can also appeal
Judge Buchwald's ruling. The might do both, appeal the rulings on their federal
claims while separately pursuing their state law claims.
As Judge Buchwald noted at the outset of her opinion,
Libor-related claims have continued to be filed even after the litigation was
consolidated before her. She stayed these many more recently filed cases while
she addressed the pending motions to dismiss in the earliest filed cases. The
various legal rulings in her March 29 order presumptively will apply to all of
these other cases that are also now before her.
Her rulings presumptively will affect other cases that
had been filed elsewhere and not yet consolidated in her court. For example,
her rulings undoubtedly will affect the Libor-related action that Freddie Mac
filed on March 13, 2013 in the Eastern District of Virginia (about which refer here,
second item). Though her decision, as a district court ruling, has no
precedential impact, it does have persuasive effect, and given the incredibly
painstaking nature of her rulings, they undoubtedly will have an impact on
these other cases even if they are not consolidated in Judge Buchwald's court.
Of course, if these other cases are consolidated before Judge Buchwald, the
litigants can look to her March 29 opinion to determine how their cases will
fare in her court.
There are, however, at least some cases that will not be
affected (at least not directly) by Judge Buchwald's opinion. Not all of the
Libor-related cases were asserted antitrust or other federal statutory claims.
There have been Libor-related claims filed solely based upon state law theories
of recovery -- for example, based on allegations of fraud (refer for
These claims may be subject to jurisdictional limitations and the state law
claims may also be subject to their own sets of defenses. But these claims at
least are not directly affected by Judge Buchwald's rulings. The claims may
also even be boosted by portions of her ruling, as for example, where she
observed that the allegations that the defendants agreed to lie about the
interest rates they are paying may support a allegations of "misrepresentation,
and possibly of fraud, but not of a failure to compete."
But though the state law claims may remain, Judge
Buchwald's ruling on the antitrust claims have to provide substantial relief to
the banks involved. One of the big concerns facing the banks has been the
possibility that their entry into regulatory settlements could handicap them in
the private antitrust litigation, which includes the possibility of treble
damages. If the looming possibility of adverse effects in separate civil litigation
is removed, it may be easier for the banks that have not yet resolved the
regulatory actions to conclude the regulators' actions. Of course, Judge
Buchwald's rulings must also survive any appeal if they are to be of reliable
comfort to the banks involved.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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