City of Phila. v. Bank of Am. Corp.
| Decision Date | 28 June 2022 |
| Docket Number | 19-CV-1608 (JMF) |
| Citation | 609 F.Supp.3d 269 |
| Parties | CITY OF PHILADELPHIA, et al., Plaintiffs, v. BANK OF AMERICA CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Brant Duncan Kuehn, Charlotte Davenport Stewart, David H. Wollmuth, Randall R. Rainer, Ronald Judah Aranoff, William Andrew Maher, Wollmuth Maher & Deutsch LLP, New York, NY, Sami H. Rashid, Steig Olson, Thomas Lepri, Daniel Lawrence Brockett, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, William Christopher Carmody, Susman Godfrey LLP, New York, NY, Jeremy Daniel Andersen, Quinn, Emanuel, Urquhart, Oliver & Hedges, LLP, Los Angeles, CA, for Plaintiff City of Philadelphia.
Carl Alan Roth, Jason Yuegin Kelly, Noah Helpern, Ryan Q. Keech, Ellis George Cipollone O'Brien Annaguey LLP, Los Angeles, CA, James Lee Michaels, Browne George Ross O'Brien Annaguey & Ellis LLP, Los Angeles, CA, Nathan Hochman, Ross LLP, Los Angeles, CA, Christopher Landau, Ellis George Cipollone O'Brien Annaguey LLP, Washington, DC, Emily Lilburn, Joseph Nicholas Kiefer, Ellis George Cipollone O'Brien Annaguey LLP, New York, NY, Daniel Lawrence Brockett, Quinn Emanuel, New York, NY, Joachim Beno Steinberg, Crowell & Moring LLP, San Francisco, CA, for Plaintiff San Diego Association of Governments.
Arun Srinivas Subramanian, Seth D. Ard, William Christopher Carmody, Tamar Lusztig, Elizabeth Ann Aronson, Susman Godfrey LLP, New York, NY, Daniel Lawrence Brockett, Quinn Emanuel, New York, NY, Amber Magee, Susman Godfrey LLP, Houston, TX, Katherine Marie Peaslee, Susman Godfrey L.L.P., Seattle, WA, for Plaintiff Mayor and City Council of Baltimore.
Brian William Hine, Sevan Ogulluk, William J. Hine, Hine & Ogulluk LLP, Melville, NY, Chris Johnstone, Wilmer Cutler Pickering Hale and Dorr LLP, Palo Alto, CA, Heather Nyong'O, San Francisco, CA, Jamie Stephen Dycus, Noah Adam Levine, Julia Pilcer Lichtenstein, Sara Elise Hershman, Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Defendants Bank of America Corporation, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Brian William Hine, Sevan Ogulluk, William J. Hine, Hine & Ogulluk LLP, Melville, NY, Chris Johnstone, Wilmer Cutler Pickering Hale and Dorr LLP, Palo Alto, CA, Heather Nyong'O, San Francisco, CA, for Defendant Banc of America Securities LLC.
Athanasia Charmani, Boris Bershteyn, Kamali Pettiford Willett, Lara A. Flath, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, Mollie Melissa Kornreich, DOJ-USAO, New York, NY, Brian William Hine, Sevan Ogulluk, William J. Hine, Hine & Ogulluk LLP, Melville, NY, Gretchen Wolf, Skadden, Arps, Slate, Meagher & Flom, LLP, Chicago, IL, for Defendants Barclays Bank PLC, Barclays Capital Inc.
In these consolidated putative class actions, Plaintiffs allege that, between 2008 and 2016, remarketing agents at some of the world's largest banks conspired to fix the interest rates for a type of bond called Variable Rate Demand Obligations ("VRDOs"). Specifically, three VRDO issuers — the City of Philadelphia ("Philadelphia"), the Mayor and City Council of Baltimore ("Baltimore"), and the Board of Directors of the San Diego Association of Governments ("San Diego") — bring claims on behalf of themselves and a proposed class of local and state public entity issuers against eight banks (collectively, the "Banks" or "Defendants").1 They allege that the Banks violated Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and breached contractual and fiduciary duties under state law. In November 2020, this Court granted in part and denied in part Defendants’ first motion to dismiss Plaintiffs’ claims. See City of Philadelphia v. Bank of Am. Corp. , 498 F. Supp. 3d 516 (S.D.N.Y. 2020). In particular, to the extent relevant here, the Court concluded that Philadelphia had failed to state a claim for breach of fiduciary duty under Pennsylvania law but declined to dismiss Baltimore's fiduciary-duty claim under Maryland law. See id. at 534-36. The Court also rejected Defendants’ effort to dismiss the bulk of Plaintiffs’ claims as time barred. Id. at 538-39.
Following that earlier ruling, the Court granted Plaintiffs’ request to consolidate with this case an additional action brought by San Diego. See ECF No. 209. Plaintiffs thereafter filed an amended complaint, incorporating San Diego's claims and correcting the inadvertent omission of J.P. Morgan Securities LLC ("JPMorgan") as one of Baltimore's remarketing agents. See ECF No. 210 ("Am. Compl."). Defendants now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss San Diego's breach-of-fiduciary-duty claims and to dismiss Baltimore's fiduciary-duty claim against JPMorgan. ECF No. 231. Defendants also move to dismiss most of San Diego's claims as time barred. Id. For the reasons that follow, Defendants’ motion to dismiss is GRANTED in part and DENIED in part. In particular, the Court concludes that San Diego's breach-of-fiduciary-duty claims and Baltimore's fiduciary-duty claim against JPMorgan can and must be dismissed but Plaintiffs’ allegations of fraudulent concealment are sufficient to reject Defendants’ timeliness arguments at this stage of the litigation.
The following facts, drawn from the Amended Consolidated Class Action Complaint ("Amended Complaint"), are presumed to be true for purposes of this motion. See, e.g. , Karmely v. Wertheimer , 737 F.3d 197, 199 (2d Cir. 2013).
As recounted in this Court's prior opinion, see City of Philadelphia , 498 F. Supp. 3d at 521-25, familiarity with which is presumed, VRDOs are a type of bond issued by municipalities and other public or charitable entities, such as schools, hospitals, and community organizations, to raise funds for operating expenses, infrastructure projects, and public services. Am. Compl. ¶¶ 2, 63. These bonds are issued on a long-term basis but have short-term interest rates that are reset on a periodic basis, typically weekly. Id. ¶¶ 3, 64, 72-73. In order to attract investors, VRDOs have a "built-in ‘put’ feature that allows investors to redeem the bond at any periodic reset date at face value" (that is, at "par") plus any accrued interest. Id. ¶ 3. That makes them a "low-risk and high-liquidity investment." Id.
To manage VRDOs, an issuer contracts with a bank to act as a remarketing agent ("RMA"). Id. ¶ 4. An RMA typically has two primary responsibilities. First, on each reset date, the RMAs are required to reset the VRDO's interest rate at the lowest rate possible that would permit the bond to trade at par. Id. Second, when an existing investor exercises the "put" option on the bond, thereby tendering the bond to the RMA, the RMA is required to remarket the VRDO to other investors at the lowest possible rate. Id. If the RMA cannot find another investor for the VRDO, the obligation to purchase the tendered bond generally falls on a letter-of-credit provider, frequently the RMA itself. Id. Importantly, if an RMA cannot deliver low rates, the bond issuer has the right to replace the RMA with another one who can. Id. ¶ 5. Thus, in a properly functioning market, RMAs compete against each other for issuers’ business by actively working to set the best (that is, the lowest) possible rates for their customers. Id.
The gravamen of Plaintiffs’ claims is that Defendants — who together serve as RMAs for the vast majority of the VRDO market, id. ¶ 69 — actively conspired not to compete against each other in the market for remarketing services. Id. ¶ 96. Instead, beginning as early as February 2008, they worked together to keep interest rates on VRDOs artificially high. Id. ¶ 97. These inflated rates benefitted the Banks by helping to keep the VRDOs off their own books. Id. ¶ 109. They also benefitted money market funds (some of which were managed by the Banks) that were the predominant holders of VRDOs.
Id. ¶ 97. Absent this coordination, the Banks that set higher rates than their competitors would have been at risk of losing their clients to those competitors. Id. ¶ 103. Plaintiffs claim that, by engaging in this conspiracy, Defendants violated Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and breached their contractual and fiduciary duties under different state laws. Id. ¶¶ 186-202.
At the outset, this case was comprised of two consolidated actions: one brought by Philadelphia, 19-CV-1608 (JMF), and one brought by Baltimore, 19-CV-2667 (JMF). See City of Philadelphia , 498 F. Supp. 3d at 521. Both cities are issuers of VRDOs that contracted Defendants to act as their RMAs. See Am. Compl. ¶¶ 25-26. As noted, in November 2019, this Court granted in part and denied in part Defendants’ motion to dismiss both cities’ claims. City of Philadelphia , 498 F. Supp. 3d at 539. Specifically, the Court dismissed Philadelphia's and Baltimore's breach-of-contract claims against a subset of Defendants who were not direct counterparties to any remarketing agreement. Id. at 533-34, 539. The Court likewise dismissed Philadelphia and Baltimore's unjust-enrichment claims and breach-of-fiduciary-duty claims in their entirety, with one exception: Baltimore's fiduciary-duty claims against Citigroup Global Markets, Inc. Id. at 534-39. In reaching that conclusion, the Court noted that Defendants had "waived the argument" that Plaintiffs failed to plead the existence of a fiduciary relationship "under Maryland law." Id. at 535. The Court also declined to dismiss Philadelphia's and Baltimore's federal antitrust claims and breach-of-contract claims against a subset of the Defendants and rejected Defendants’ argument that the bulk of Philadelphia and Baltimore's claims were time barred. Id. at 532, 534-39. Following that ruling, the Court entered a Case Management Plan and the parties commenced discovery. See ECF No. 153.
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