7 W. 57TH St. Realty Co. v. Citigroup, Inc.
| Decision Date | 31 March 2015 |
| Docket Number | 13 Civ. 981 (PGG) |
| Court | U.S. District Court — Southern District of New York |
| Parties | 7 WEST 57TH STREET REALTY COMPANY, LLC, Plaintiff, v. CITIGROUP, INC.; CITIBANK, N.A.; BANK OF AMERICA CORP.; BANK OF AMERICA N.A.; BARCLAYS BANK PLC; UBS AG; JPMORGANCHASE & CO.; JPMORGAN CHASE BANK, NATIONAL ASSOCIATION; CREDIT SUISSE GROUP AG; BANK OF TOKYO-MITSUBISHI UFJ LTD.; COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.; HSBC HOLDINGS PLC; HSBC BANK PLC; HBOS PLC; LLOYDS BANKING GROUP PLC; ROYAL BANK OF CANADA; THE NORTNCHUKIN BANK; ROYAL BANK OF SCOTLAND GROUP, PLC; WESTLB AG; WESTDEUTSCHE IMMOBILIENBANK AG; DEUTSCHE BANK AG, Defendants. |
On February 13, 2013, Plaintiff 7 West 57th Street Realty Company, LLC - the assignee of Sheldon H. Solow - filed this action against Defendants Citigroup, Inc.; Citibank, N.A.; Bank of America Corp.; Bank of America N.A.; Barclays Bank Plc; UBS AG; JPMorgan Chase & Co.; JPMorgan Chase Bank, National Association; Credit Suisse Group AG; Bank of Tokyo-Mitsubishi UFJ Ltd.; Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.; HSBC Holdings Plc; HSBC Bank Plc; HBOS Plc; Lloyds Banking Group Plc; Royal Bank of Canada; The Norinchukin Bank; Royal Bank of Scotland Group, Plc; WestLB AG; Westdeutsche Immobilienbank AG; and Deutsche Bank AG, alleging that Defendants colluded to manipulatethe London InterBank Offered Rate for the U.S. dollar ("USD-LIBOR") in 2008. Plaintiff claims that Defendants - who are members of the British Bankers Association (the "BBA"), and who were responsible for submitting interest rates that the BBA used to calculate USD-LIBOR in 2008 - violated Section 1 of the Sherman Act, 15 U.S.C. § 1; the Clayton Act, 15 U.S.C. §12 et seq.; the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq; and New York's Donnelly Act, N.Y. Gen. Bus. Law § 340. (Am. Cmplt. (Dkt. No. 95) ¶ 1)
Defendants have moved to dismiss the Amended Complaint. (Dkt. Nos. 114, 139) For the reasons stated below, Defendants' motions to dismiss will be granted.
The London InterBank Offered Rate ("LIBOR") is set daily by the BBA, a non-regulatory body governed by a board composed of members of various banks. (Am. Cmplt. (Dkt. No. 95) ¶¶ 39, 40) LIBOR functions as a pricing mechanism and benchmark for determining, inter alia, interest rates for trillions of dollars in financial instruments worldwide. (Id. ¶¶ 5, 50-55)
Each day, the BBA calculates and publishes LIBOR for ten currencies, including the U.S. dollar. (Id. ¶ 41) Each of these currencies is overseen by a separate BBA "Contributor Panel." (Id.) A Contributor Panel consists of various banks that - as described below - provide submissions to the BBA that are used to calculate the daily LIBOR for that panel's particular currency. See id.
Defendants are or were members of the Contributor Panel for the U.S. dollar. (Id. ¶ 39) Defendants are also horizontal competitors across a range of financing activities, including transactions that expressly incorporate LIBOR as a benchmark. (Id. ¶ 36)
USD-LIBOR is set daily through a process orchestrated by the BBA. (Id. ¶ 43) Each day, the BBA asks the sixteen banks on the Contributor Panel for USD-LIBOR (the "contributing banks") "[a]t what rate [of interest] [they] could . . . borrow funds, were [they] to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am[.]" (Id.) Under BBA rules, each bank's answer - referred to as its "contribution" or "submission" - is meant to reflect the interest rate at which members of the bank's staff who are primarily responsible for management of the bank's cash believe that the bank could borrow unsecured interbank funds in the London money market. (Id. ¶ 44) Under BBA rules, each contributing bank's submission must be based on its own independent good faith judgment, taking into account market conditions and the bank's posture as a borrower in the market for interbank loan funds. (Id. ¶ 45) The contributing banks' daily submissions to the BBA reflect their costs of borrowing funds at three maturity dates - one-month, three-months, and six-months. (Id. ¶ 43)
Thomson Reuters - an independent entity - collects the contributing banks' submissions on the BBA's behalf. (Id. ¶¶ 47, 49) Using the contributing banks' submissions, Thomson Reuters calculates USD-LIBOR through an "inter-quartile" methodology, in which it discards the four highest and the four lowest submissions, and then averages the remaining eight submissions to arrive at the USD-LIBOR for a given day. (Id. ¶ 43)
The BBA requires each contributing bank to arrive at its own daily submission without referring to the submissions of other banks on the Contributor Panel. (Id. ¶¶ 44, 46)Each bank is further required to keep its submission confidential until after Thomson Reuters publishes the daily USD-LIBOR. (Id. ¶¶ 46, 49) When USD-LIBOR is published, the rates submitted by each individual contributor bank are published as well, so that it is clear how USD-LIBOR was calculated. (Id. ¶¶ 46, 47)
The BBA also prohibits banks from submitting contributions based on the pricing of any derivative financial instruments tied to LIBOR. (Id. ¶ 44) This prohibition is intended to prevent contributing banks from making submissions based on a motive to maximize profits or minimize losses in connection with such derivative transactions. (Id.)
By 2008, however, Defendants were not complying with the BBA's rules governing their submissions. See id. ¶ 5. Instead, "Defendants . . . manipulate[d] USD-LIBOR by falsely reporting to the BBA the .. . interest rates at which the Defendant banks expected they could borrow funds . . . on a daily basis." (Id. ¶¶ 6, 68, 73) Traders at the contributing banks asked their colleagues who were responsible for submitting rates to the BBA (the "LIBOR submitters") to submit rates that would benefit the bank's own trading positions, as opposed to rates that reflected the bank's good faith judgment of its true cost of borrowing that day. See, e.g., id. Traders also requested that their counterparts at other contributing banks do the same. See, e.g., id. The traders made these requests through electronic messages, telephone calls, and in-person conversations. See, e.g., id. ¶ 61. The LIBOR submitters frequently agreed to accommodate these requests. See id. Through their traders' requests - and the LIBOR submitters' acquiescence - Defendants caused rates to be submitted to the BBA that served Defendants' own financial interests, rather than complying with BBA standards. (Id. ¶¶ 5, 6) As a result, USD-LIBOR calculated on the basis of these rates was "artificial" and did not reflect the contributing banks' true costs of borrowing under actual market conditions. (Id.)
Solow - who assigned his claims related to this action to Plaintiff - pledged a portfolio of more than $450 million in high-grade municipal bonds as collateral for LIBOR-denominated loans in or about 2003. See id. ¶¶ 9, 148. Several of these loans were issued by Defendant Citibank, N.A. (Id. ¶¶ 9, 15) The interest rate for these loans was determined by reference to USD-LIBOR. See id. ¶ 9. For approximately five years, the interest rate on Solow's loans was LIBOR + 0.75%. (Id. ¶ 148) In March 2008, however, Citibank increased the interest rate on the loans to LIBOR + 1.25%. (Id. ¶ 148)
Statistical analysis indicates that - at certain times between August 31, 2007 and October 22, 2008 - there was a negative correlation coefficient relationship between one-month USD-LIBOR rates and Standard & Poor's ("S&P") New York AMT-Free Municipal Bond Index (the "S&P bond index"), which is an index that measures the performance of bonds similar to those in Solow's portfolio. (Id. ¶ 156) This analysis suggests that an increase in one-month USD-LIBOR during those periods was, on average, associated with a decline in the value of the bonds listed in the S&P bond index. (Id.)
Between September 12, 2008 and October 10, 2008, Defendants' submissions to the BBA for the calculation of USD-LIBOR were higher than their true costs of borrowing, which resulted in the artificial inflation of USD-LIBOR throughout that period. (Id. ¶¶ 151, 153-54, 157)
On September 24, 2008, Citibank notified Solow that on five consecutive days between September 17 and September 23, 2008, the value of his bond portfolio had dropped below the value required as collateral for his loans. (Id. ¶ 152) Solow was then current on hisloans, but Citibank nonetheless declared a technical default and seized Solow's bond portfolio. (Id. ¶¶ 9, 149, 152, 158)
On November 3, 2008, Solow's portfolio - which had been worth $450 million when pledged as collateral - sold for approximately $415 million, net of commissions. (Id. ¶ 159) Defendants Citibank, JPMorgan, Bank of America, Barclays, and Deutsche Bank were "direct and indirect" participants in the liquidation of the portfolio, with Citibank purchasing a substantial portion of the portfolio in the first instance. (Id. ¶ 158) Because there was still a deficiency in the amount Solow owed following this sale, Citibank seized the portfolio's earned interest of more than $15,000 as well. (Id. ¶ 159)
Between October 6 and November 13, 2008, Citibank seized more than $4.2 million in cash from accounts held by Solow. (Id.) Citibank claimed that at least $2.1 million of the cash seized was for interest that Solow owed on the loans after default. (Id.) In calculating interest, Citibank applied a "default" interest rate, which was LIBOR-denominated and higher than the interest rate that had applied prior to Citibank's declaration of default. (Id.)
After these transactions, Citibank still claimed a $67 million deficiency, and demanded immediate payment of the deficiency and an additional $18.5 million in cash...
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