823 F.3d 759 (2nd Cir. 2016), 13-3565-cv (L), Gelboim v. Bank of America Corp.
|Docket Nº:||13-3565-cv (L), 13-3636-cv (CON), 15-441-cv (CON), 15-454-cv (CON), 15-477-cv (CON), 15-494-cv (CON), 15-498-cv (CON), 15-524-cv (CON), 15-537-cv (CON), 15-547-cv (CON), 15-551-cv (CON), 15-611-cv (CON), 15-620-cv (CON), 15-627-cv (CON), 15-733-cv (CON), 15-744-cv (CON), 15-778-cv (CON), 15-825-cv (CON), 15-830-cv (CON)|
|Citation:||823 F.3d 759|
|Opinion Judge:||DENNIS JACOBS, Circuit Judge:|
|Party Name:||ELLEN GELBOIM et al., Plaintiffs-Appellants, v. BANK OF AMERICA CORPORATION et al., Defendants-Appellees|
|Attorney:||THOMAS C. GOLDSTEIN (with Eric F. Citron on the brief), Goldstein & Russell, P.C., Bethesda, MD, for Plaintiffs-Appellants Ellen Gelboim and Linda Zacher in Case No. 13-3565. ROBERT F. WISE, JR. (with Arthur J. Burke & Paul S. Mishkin on the brief), Davis Polk & Wardwell LLP, New York, NY, for De...|
|Judge Panel:||Before: JACOBS, RAGGI, and LYNCH, Circuit Judges.|
|Case Date:||May 23, 2016|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued November 13, 2015.
As Corrected June 9, 2016.
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Plaintiffs-appellants, comprising individuals and entities that held diverse financial instruments, allege that the defendant banks colluded to depress a benchmark incorporated into those instruments, thereby decreasing the instruments' financial returns in violation of Section One of the Sherman Act. The United States District Court for the Southern District of New York (Buchwald, J.) dismissed the lawsuit for failure to allege antitrust injury. We vacate the judgment and remand for further proceedings consistent with this opinion.
THOMAS C. GOLDSTEIN (with Eric F. Citron on the brief), Goldstein & Russell, P.C., Bethesda, MD, for Plaintiffs-Appellants Ellen Gelboim and Linda Zacher in Case No. 13-3565.
ROBERT F. WISE, JR. (with Arthur J. Burke & Paul S. Mishkin on the brief), Davis Polk & Wardwell LLP, New York, NY, for Defendants-Appellees Bank of America Corporation, Bank of America, N.A., and Merrill Lynch, Pierce, Fenner & Smith, Inc. (f/k/a Banc of America Securities LLC), (additional counsel for the many parties and amici are listed in Appendix A).
Before: JACOBS, RAGGI, and LYNCH, Circuit Judges.
DENNIS JACOBS, Circuit Judge:
Appellants purchased financial instruments, mainly issued by the defendant banks, that carried a rate of return indexed to the London Interbank Offered Rate (" LIBOR" ), which approximates the average rate at which a group of designated banks can borrow money. Appellees, 16 of the world's largest banks (" the Banks" ), were on the panel of banks that determined LIBOR each business day based, in part, on the Banks' individual submissions. It is alleged that the Banks colluded to depress LIBOR by violating the rate-setting rules, and that the payout associated with the various financial instruments was thus below what it would have been if the rate had been unmolested. Numerous antitrust lawsuits against the Banks were consolidated into a multi-district litigation (" MDL" ).
The United States District Court for the Southern District of New York (Buchwald, J.) dismissed the litigation in its entirety on the ground that the complaints failed to plead antitrust injury, which is one component of antitrust standing. The district court reasoned that the LIBOR-setting process was collaborative rather than competitive, that any manipulation to depress
LIBOR therefore did not cause appellants to suffer anticompetitive harm, and that they have at most a fraud claim based on misrepresentation. The complaints were thus dismissed on the ground that they failed to allege harm to competition.
We vacate the judgment on the ground that: (1) horizontal price-fixing constitutes a per se antitrust violation; (2) a plaintiff alleging a per se antitrust violation need not separately plead harm to competition; and (3) a consumer who pays a higher price on account of horizontal price-fixing suffers antitrust injury. Since the district court did not reach the second component of antitrust standing --a finding that appellants are efficient enforcers of the antitrust laws--we remand for further proceedings on the question of antitrust standing. The Banks urge affirmance on the alternative ground that no conspiracy has been adequately alleged; we reject this alternative.
" Despite the legal complexity of this case, the factual allegations are rather straightforward." In re: LIBOR-Based Fin. Instruments Antitrust Litig., 935 F.Supp.2d 666, 677 (S.D.N.Y. 2013) (" LIBOR I" ). Appellants entered into a variety of financial transactions at interest rates that reference LIBOR. Because LIBOR is a component or benchmark used in countless business dealings, it has been called " the world's most important number." 1 Issuers of financial instruments typically set interest rates at a spread above LIBOR, and the interest rate is frequently expressed in terms of the spread. LIBOR rates are reported for various intervals, such as one month, three months, six months, and twelve months.
The LIBOR-based financial instruments held by the appellants included: (1) asset swaps, in which the owner of a bond pegged to a fixed rate pays that fixed rate to a bank or investor while receiving in return a floating rate based on LIBOR; (2) collateralized debt obligations, which are structured asset-backed securities with multiple tranches, the most senior of which pay out at a spread above LIBOR; and (3) forward rate agreements, in which one party receives a fixed interest rate on a principal amount while the counterparty receives interest at the fluctuating LIBOR on the same principal amount at a designated endpoint. These examples are by no means exhaustive.
The Banks belong to the British Bankers' Association (" BBA" ), the leading trade association for the financial-services sector in the United Kingdom. During the relevant period, the BBA was a private association that was operated without regulatory or government oversight and was governed by senior executives from twelve banks.2 The BBA began setting LIBOR on January 1, 1986, using separate panels for different currencies. Relevant to this appeal, the U.S. Dollar (" USD" ) LIBOR panel was composed of 16 member banks of the BBA.
The daily USD LIBOR was set as follows. All 16 banks were initially asked: " At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 a.m.?" Each bank was to respond on the basis of (in part)
its own research, and its own credit and liquidity risk profile. Thomson Reuters later compiled each bank's submission and published the submissions on behalf of the BBA. The final LIBOR was the mean of the eight submissions left after excluding the four highest submissions and the four lowest. Among the many uses and advantages of the LIBOR-setting process is the ability of parties to enter into floating-rate transactions without extensive negotiation of terms.
Three key rules governed the LIBOR-setting process: each panel bank was to independently exercise good faith judgment and submit an interest rate based upon its own expert knowledge of market conditions; the daily submission of each bank was to remain confidential until after LIBOR was finally computed and published; and all 16 individual submissions were to be published along with the final daily rate and would thus be " transparent on an ex post basis." 3 Thus any single bank would be deterred from submitting an outlying LIBOR bid that would risk negative media attention and potential regulatory or government scrutiny. Collectively, these three rules were intended as " safeguards ensuring that LIBOR would reflect the forces of competition in the London interbank loan market." 4
Although LIBOR was set jointly, the Banks remained horizontal competitors in the sale of financial instruments, many of which were premised to some degree on LIBOR. With commercial paper, for example, the Banks received cash from purchasers in exchange for a promissory obligation to pay an amount based, in part, on LIBOR at a specified maturity date (usually nine months); in such transactions, the Banks were borrowers and the purchasers were lenders. Similarly, with swap transactions, the Banks received fixed income streams from purchasers in exchange for variable streams that incorporated LIBOR as the reference point.
A LIBOR increase of one percent would have allegedly cost the Banks hundreds of millions of dollars. Moreover, since during the relevant period the Banks were still reeling from the 2007 financial crisis, a high LIBOR submission could signal deteriorating finances to the public and the regulators.
Appellants allege that the Banks corrupted the LIBOR-setting process and exerted downward pressure on LIBOR to increase profits in individual financial transactions and to project financial health. In a nutshell, appellants contend that, beginning in 2007, the Banks engaged in a horizontal price-fixing conspiracy, with each submission reporting an artificially low cost of borrowing in order to drive LIBOR down. The complaints rely on two sources.
The vast majority of allegations follow directly from evidence collected in governmental investigations.5 The United States
Department of Justice (" DOJ" ) unearthed numerous potentially relevant emails, communications, and documents, some of which are referenced in the complaints and only a few of which are referenced for illustrative purposes. Prompted by the DOJ investigations, three banks--Barclays, UBS, and RBS--have reached settlements over criminal allegations that they manipulated and fixed LIBOR.
In addition, the complaints rely on statistics. The DOJ compiled evidence that from June 18, 2008 until April 14, 2009, UBS's individual three-month LIBOR submissions were identical to the later-published LIBOR benchmark that was based on all 16 submissions; the statistical probability that UBS independently predicted LIBOR exactly over approximately ten consecutive months is minuscule....
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