Fire & Police Pension Ass'n of Colo v. Bank of Montreal

• Decision Date: 14 March 2019
• Docket Number: 18 Civ. 342 (AT)
• Parties: FIRE & POLICE PENSION ASSOCIATION OF COLORADO, Individually and on Behalf of All Those Similarly Situated, Plaintiff, v. BANK OF MONTREAL, BMO Financial Corp., BMO Nesbitt Burns Inc., BMO Capital Markets Corp., Bank of America Corporation, Bank of America N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch Canada Inc., Deutsche Bank AG, Deutsche Bank Securities Inc., Deutsche Bank Securities Limited, the Bank of Nova Sccotia, Scotia Capital (USA) Inc., Scotia Capital Inc., Canadian Imperial Bank of Commerce, CIBC World Markets Corp., CIBC World Markets, Inc., HSBC Holdings PLC, HSBC Bank PLC, HSBC North America Holdings Inc., HSBC Securities (USA) Inc., HSBC Bank Canada, National Bank of Canada, National Bank Financial Inc., National Bank of Canada Financial Inc., Royal Bank of Canada, RBC Dominion Securities Inc., RBC Capital Markets, LLC, Toronto-Dominion Bank, TD Securities Inc., TD Securities (USA) LLC, Defendants.
• Court: U.S. District Court — Southern District of New York

368 F.Supp.3d 681

FIRE & POLICE PENSION ASSOCIATION OF COLORADO, Individually and on Behalf of All Those Similarly Situated, Plaintiff,

v.BANK OF MONTREAL, BMO Financial Corp., BMO Nesbitt Burns Inc., BMO Capital Markets Corp., Bank of America Corporation, Bank of America N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch Canada Inc., Deutsche Bank AG, Deutsche Bank Securities Inc., Deutsche Bank Securities Limited, the Bank of Nova Sccotia, Scotia Capital (USA) Inc., Scotia Capital Inc., Canadian Imperial Bank of Commerce, CIBC World Markets Corp., CIBC World Markets, Inc., HSBC Holdings PLC, HSBC Bank PLC, HSBC North America Holdings Inc., HSBC Securities (USA) Inc., HSBC Bank Canada, National Bank of Canada, National Bank Financial Inc., National Bank of Canada Financial Inc., Royal Bank of Canada, RBC Dominion Securities Inc., RBC Capital Markets, LLC, Toronto-Dominion Bank, TD Securities Inc., TD Securities (USA) LLC, Defendants.

18 Civ. 342 (AT)

United States District Court, S.D. New York.

Signed March 14, 2019

Christian Levis, Geoffrey Milbank Horn, Lee Jason Lefkowitz, Matthew John Acocella, Peter Dexter St. Phillip, Jr, Roland Raymond St. Louis, III, Vincent Briganti, Raymond Peter Girnys, Lowey Dannenberg P.C., White Plains, NY, Carl Hammarskjold, Colleen Cleary, Jessica Moy, Todd Seaver, Berman Tabacco, San Francisco, CA, Patrick Thomas Egan, Berman DeValerio, Boston, MA, for Plaintiff.

Adam Selim Hakki, Jerome Steven Fortinsky, Suzanne Skinner Forster, Daniel Hector Rees Laguardia, Jeffrey Jason Resetarits, Edward Thomas Decker, Shearman & Sterling LLP, Sheila Ruby Adams, Adam Gabor Mehes, Dana Meredith Seshens, Paul Steel Mishkin, Davis Polk & Wardwell LLP, Aidan John Synnott, Moses Silverman, Hallie Suzanne Goldblatt, Paul Weiss, Arianna Markel, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Sandra Denise Hauser, Timothy Jon Straub, Dentons U.S. LLP, Gregory Thomas Casamento, Locke Lord LLP, Brian Theodore Kohn, Harry Simeon Davis, Thomas Paul DeFranco, Schulte, Roth & Zabel LLP, Douglas Kent Yatter, Lawrence Edward Buterman, Richard David Owens, Corey Anne Calabrese, Leah Friedman, Latham & Watkins LLP, David Sapir Lesser, Jamie Stephen Dycus, Wilmer Cutler Pickering Hale & Dorr LLP, New York, NY, Ryan Ashby Shores, Shearman & Sterling LLP, Washington, DC, John F. Cove, Jr., Boies, Schiller and Flexner, Oakland, CA, Stephen J. Senderowitz, William E. Walsh, Dentons U.S. LLP, James Matthew Goodin, Julia C. Webb, Locke Lord LLP, Chicago, IL, Roger Brian Cowie, Locke Lord LLP, Dallas, TX, for Defendants.

ORDER

ANALISA TORRES, United States District JudgePlaintiff, Fire & Police Pension Association of Colorado, brings this action against Defendants,¹ thirty-three banks, alleging violations of the Sherman Act, 15 U.S.C. § 1 et seq. ; the Commodity Exchange Act ("CEA"), 7 U.S.C. § 1 et seq. ; and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. via mail and wire fraud. Am. Compl., ECF No. 73. Plaintiff also asserts causes of action for unjust enrichment and breach of the implied covenant of good faith and fair dealing. Id. Defendants move to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) and lack of subject matter jurisdiction under Rule 12(b)(1). ECF No. 113. A subset of those Defendants (the "Foreign Defendants")² also move to dismiss the complaint for lack of personal jurisdiction under Rule 12(b)(2). Id. For the reasons stated below, the motions are GRANTED.

BACKGROUND

Except as noted, the following facts are taken from the complaint, which the Court accepts as true for purposes of these motions. See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007) (evaluating a Rule 12(b)(6) motion); J.S. ex rel. N.S. v. Attica Cent. Sch. , 386 F.3d 107, 110 (2d Cir. 2004) (evaluating a Rule 12(b)(1) motion); Metro. Life Ins. Co. v. Robertson-Ceco Corp. , 84 F.3d 560, 566 (2d Cir. 1996) (evaluating a 12(b)(2) motion). Only the relevant facts are summarized here.

This is an action against thirty-three corporate defendants, comprising parents, subsidiaries, and affiliates of nine international banking institutions who participated in the rate-setting process of the Canadian Dollar Offered Rate ("CDOR").³ Am. Compl. ¶ 2; see also id. § B. The crux of Plaintiff's claim is that Defendants conspired to suppress CDOR to benefit their derivatives trading positions from August 9, 2007 to December 31, 2014 (the "Class Period"). Id. ¶¶ 1–2. Plaintiff, which administers a retirement system for police officers and firefighters, alleges that it was harmed because it transacted "in CDOR-Based Derivatives during the Class Period," including directly with certain Defendants. Id. ¶ 43.

CDOR is "the benchmark used to price Canadian dollar-denominated derivatives in the United States." Id. ¶ 268. It is supposed to reflect the cost of borrowing Canadian dollars in North America. Id. ¶ 3. CDOR is calculated daily based on submissions from the "CDOR Panel"⁴ —which included sixteen Defendants.⁵ Id. ¶¶ 248, 269. Each CDOR Panel member's submission should reflect the rate at which they are willing to lend against Bankers' Acceptances ("BAs)"⁶ for five different tenors.⁷ Id. ¶ 269. Thomson Reuters collects these submissions, averages them in accordance with a set formula, and publishes the average rate to financial data providers who distribute it throughout the world. Id. ¶¶ 269–271.

Manipulation of CDOR is central to the claims of the complaint. CDOR is used to price various types of derivatives, which are financial instruments priced, benchmarked, and/or settled based on CDOR ("CDOR-Based Derivatives"). Id. ¶ 2. Changes in CDOR, therefore, impact those derivative transactions. Id. For example, a swap is a derivative in which "two parties exchange the obligation to make a series of periodic payments (e.g. monthly) based on [an] underlying principal amount (e.g. $ 1 billion CAD) for [a] set period (e.g. one year)." Id. ¶ 277. CDOR determines the amount paid or received by each party in a CDOR-Based swap. Id. ¶ 278. There are many different types of CDOR-Based swaps, but in a "plain vanilla" interest rate swap, one party makes payments based on a variable rate (e.g. CDOR) while another makes payments based on a fixed rate. Id. ¶ 279. In that situation, the party making payments based on the variable rate (CDOR) would benefit if CDOR were suppressed. CDOR also impacts "CDOR-Based Loans" in which the loan's interest rate is based on CDOR. Id. ¶ 257–58, 299.

Plaintiff alleges that Defendants conspired to suppress CDOR during the Class Period by submitting artificially low rates that did not reflect the rate at which they were lending Canadian dollars in North America in order to increase profits from their CDOR-Based Derivatives positions. Id. ¶¶ 5–6, 329. Plaintiff claims that prior to the start of the Class Period in 2007, Defendants had large CDOR-Based Loan portfolios in which borrowers made interest payments based on CDOR, but in 2007, they reduced their CDOR-Based lending and increased sales of CDOR-Based Derivatives. Id. ¶¶ 299–302. Plaintiff alleges that this created a motive and financial incentive for Defendants to suppress CDOR to reduce the amount of interest they were required to pay on their CDOR-Based Derivatives. Id. ¶ 309.

In support of its claims, Plaintiff submits the following evidence. First, in terms of Defendants' collusion, Plaintiff alleges, among other things, that Defendants submitted identical or very similar CDOR rates for certain tenors at various points during the Class Period. Id. § IV.A. Second, to support its claim that CDOR was suppressed, Plaintiff compares CDOR to two other allegedly comparable benchmarks during the Class Period. Id. § III. Plaintiff also relies on a report of the Investment Industry Regulatory Organization of Canada ("IIROC"). Id. ¶ 261. In 2011, the IIROC announced it was "initiating a review of the CDOR rate-setting process," id. ¶ 348, and in January 2013, it released a "report on its review of CDOR supervisory practices" and reported that CDOR submissions were "prepared by employees of [CDOR panel] dealers' parent/affiliate bank or by persons that are dually-employed at both the [CDOR panel dealer and the bank]," id. ¶ 261. The IIROC report recommended that the rate-setting process be clarified, and regulations be implemented to control the rate-setting process to prevent manipulation. Id.

Defendants are thirty-three financial institutions. Specifically, nine Defendants are parent banks and the other twenty-four are subsidiaries or affiliates of the parent banks. See id. § B. Many Defendants are incorporated and headquartered in foreign countries, including all of the parent banks with the exception of Bank of America. Id. ¶¶ 44, 72, 90, 106, 143, 163, 193, 213, 227. Sixteen Defendants served on the CDOR Panel, all of which are located abroad, see id. ¶¶ 44, 72, 90, 143, 163, 193, 136, 219, 227, 95, 243, 202, 248,⁸ while the other Defendants allegedly furthered the conspiracy by marketing and selling CDOR-Based Derivatives to U.S. investors, see, e.g., id. ¶ 28, or acting as a holding company for subsidiaries, see, e.g., id. ¶ 111.

DISCUSSION

I. 12(b)(2) Legal Standard

On a motion to dismiss pursuant to Rule 12(b)(2), the "plaintiff bears the burden of demonstrating personal jurisdiction over a person or entity against whom it seeks to bring suit." Penguin Grp. (USA) Inc. v. Am. Buddha , 609 F.3d 30, 34 (2d Cir. 2010). In deciding "a pretrial motion to dismiss for lack of personal jurisdiction a district court has considerable procedural leeway." Dorchester Fin. Sec., Inc. v. Banco BRJ, S.A. , 722 F.3d 81, 84 (2d Cir. 2013). To defeat a jurisdiction-testing motion, the plaintiff's burden of proof "varies depending on the procedural posture of the litigation." Id. at 84 (internal quotation marks and citation omitted). At the pleading stage—and prior to...