In re All

• Decision Date: 23 August 2013
• Docket Number: No. 11 MD 2262(NRB).,11 MD 2262(NRB).
• Citation: 962 F.Supp.2d 606
• Parties: In re LIBOR–BASED FINANCIAL INSTRUMENTS ANTITRUST LITIGATION. This Document Relates to: All Cases.
• Court: U.S. District Court — Southern District of New York

962 F.Supp.2d 606

In re LIBOR–BASED FINANCIAL INSTRUMENTS ANTITRUST LITIGATION.

This Document Relates to: All Cases.

No. 11 MD 2262(NRB).

United States District Court,

S.D. New York.

Aug. 23, 2013.

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, District Judge.

I. Introduction

On March 29, 2013, we issued a Memorandum and Order granting in part and denying in part defendants' motions to dismiss plaintiffs' complaints (the “March 29 Order ”). In re LIBOR–Based Fin. Instruments Antitrust Litig. ( Mar. 29 Order ), 935 F.Supp.2d 666 (S.D.N.Y.2013). Specifically, we dismissed plaintiffs' antitrust and RICO claims in full; we dismissed plaintiffs' commodities manipulation claims to the extent they were based on contracts entered into between August 2007 and May 29, 2008; and, we allowed plaintiffs' commodities manipulation claims to the extent they were based on contracts entered into between May 30, 2008, and May 2010.¹ Finally, we dismissed with prejudice the exchange-based plaintiffs' state-law claim for unjust enrichment and declined to exercise supplemental jurisdiction over the remaining state-law claims.

Since the issuance of the March 29 Order, the parties have filed a number of motions. First, the exchange-based plaintiffs have moved for certification of the March 29 Order for interlocutory appeal on the question of whether LIBOR is the commodity underlying Eurodollar futures contracts (“plaintiffs' motion for interlocutory appeal”). Second, three defendants, Bank of Tokyo–Mitsubishi UFJ, Ltd. (“BT–MU”), Credit Suisse Group AG (“Credit Suisse”), and Norinchukin Bank (“Norinchukin”) have moved for reconsideration of that portion of our Memorandum and Order denying their motion to dismiss the exchange-based plaintiff's commodity manipulation claims (“defendants' motion for reconsideration”). Third, the over-the-counter (“OTC”), bondholder, and exchange-based plaintiffs have each moved for leave to file a second amended complaint to add allegations in response to our ruling that plaintiffs had not plausibly alleged antitrust injury (“plaintiffs' motion to amend their antitrust claims”).² Finally, the exchange-based plaintiffs have moved for leave to file a second amended complaint to add allegations relating to their commodity manipulation claims (“plaintiffs' motion to amend their commodities manipulation claims”).

For the reasons stated below, the exchange-based plaintiffs' motion for interlocutory appeal is denied; the OTC, bondholder, and exchange-based plaintiffs' motions to add allegations with respect to antitrust are denied; the exchange-based plaintiffs' motion to add allegations with respect to trader-based manipulation is denied; BT–MU, Credit Suisse, and Norinchukin's motion for reconsideration is denied without prejudice to a similar motion being filed by defendants that addresses the issues raised herein; and, the OTC plaintiffs' motion for leave to reassert their unjust enrichment claim and to add a claim for breach of the implied covenant of good faith and fair dealing is granted.

Because the background of this case has been thoroughly set out in the March 29 Order, we will proceed directly to our consideration of the pending motions.

II. Discussion

A. Plaintiffs' Motion for Interlocutory Appeal

Plaintiffs have moved for certification of the March 29 Order for interlocutory appeal on the following question: “Whether LIBOR is the ‘commodity underlying’the Eurodollar futures contract within the meaning of Section 22(a)(1)(D) of the Commodity Exchange Act (‘CEA’).” Letter from Christopher Lovell and David E. Kovel to the Court (Apr. 22, 2013) [hereinafter Pls.' Letter Mot. for Interlocutory Appeal].³ Under 28 U.S.C. § 1292:

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order[.]

28 U.S.C. § 1292(b).⁴ As the Second Circuit has held: “It is a basic tenet of federal law to delay appellate review until a final judgment has been entered. Section 1292(b)'s legislative history reveals that ... [this law] is a rare exception to the final judgment rule that generally prohibits piecemeal appeals.” Koehler v. Bank of Bermuda Ltd., 101 F.3d 863, 865 (2d Cir.1996) (citation omitted). Indeed, “only exceptional circumstances [will] justify a departure from the basic policy of postponing appellate review until after the entry of a final judgment,” Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Americas, 426 F.Supp.2d 125, 127 (S.D.N.Y.2005) (alteration in original) (quoting Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 25 (2d Cir.1990)) (internal quotation marks omitted), and district courts must “exercise great care in making a § 1292(b) certification,” id. (quoting Westwood Pharm., Inc. v. Nat'l Fuel Gas Distrib. Corp., 964 F.2d 85, 89 (2d Cir.1992)).

Here, interlocutory appeal is not warranted because there is not “substantial ground for difference of opinion” regarding whether LIBOR is the commodity underlying Eurodollar futures contracts. As we explained in the March 29 Order, a Eurodollar futures contract is a futures contract whose “underlying instrument” is a “Eurodollar Time Deposit having a principal value of USD $1,000,000 with a three-month maturity.” CME Group, Eurodollar Futures: Contract Specifications, http:// www. cmegroup. com/ trading/ interest- rates/ stir/ eurodollar_ contract_ specifications. html (last visited August 23, 2013). “Eurodollars are U.S. dollars deposited in commercial banks outside the United States.” CME Group, Eurodollar Futures, http:// www. cmegroup. com/ trading/ interest- rates/ files/ IR 148_ Eurodollar_ Futures_ Fact_ Card. pdf. At settlement, the price of a Eurodollar futures contract “is equal to 100 minus the three-month Eurodollar interbank time deposit rate,” which rate is defined as the LIBOR fix on the contract's last trading day. CME Group, Eurodollar Futures Final Settlement Procedure, http:// www. cmegroup. com/ trading/ interest- rates/ files/ final- settlement- procedure- eurodollar futures. pdf. Prior to settlement, “the price of a 3–month Eurodollar futures contract is an indication of the market's prediction of the 3–month Dollar LIBOR on [that] date.” Settlement Agreement Between Dep't of Justice, Criminal Div., and Barclays (June 26, 2012), Appendix A, ¶ 9, Ex. B, Porpora Decl.

Plaintiffs argue that LIBOR is the commodity underlying Eurodollar futures contracts for purposes of the CEA. But this position is simply implausible. For one, LIBOR is a price index; it is not a “commodity,” which the CEA defines to include “all services, rights, and interests ... in which contracts for future delivery are presently or in the future dealt in.” 7 U.S.C. § 1a(9). Moreover, to call LIBOR a commodity, one would need to be able to articulate a price of LIBOR independent from LIBOR itself. Plaintiffs have not plausibly done so, and we cannot imagine how they could.

As we reasoned in the March 29 Order, “[t]he only plausible way to characterize the components of a Eurodollar contract is that the underlying commodity is a USD 1,000,000 deposit in a foreign commercial bank with a three-month maturity, and the price of the contract is settled or traded at a value based on LIBOR.” ⁵Mar. 29 Order, 935 F.Supp.2d at 720. Just as the prices of futures contracts based, for example, on gold or copper track the prices of their respective underlying commodities, see Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 488 (7th Cir.2002); Sanner v. Bd. of Trade of City of Chicago, 62 F.3d 918, 929 (7th Cir.1995), so the prices of Eurodollar futures contracts track (generally) the prices of three-month U.S. dollar time deposits in foreign banks. In the case of futures based on physical commodities, the correlation of futures contract price with underlying commodity price occurs by virtue of the natural operation of the market. In the case of Eurodollar futures, the correlation occurs because the futures price directly incorporates LIBOR, which is an index intended to represent the average price paid by banks for three-month U.S. dollar time deposits. If, as plaintiffs allege, defendants submitted false LIBOR quotes to the BBA, it would be inaccurate to say that they manipulated the commodity underlying Eurodollar futures contracts or the price of that commodity, thereby affecting Eurodollar futures prices indirectly. Rather, the best characterization of what defendants allegedly did would be that they affected Eurodollar futures prices directly by manipulating the index that was directly incorporated into the formula for those prices.

Contrary to plaintiffs' argument, see Pls.' Letter Mot. for Interlocutory Appeal 2, the fact that defendants have described Eurodollar futures contracts as “bets on LIBOR” does not suggest that LIBOR is the commodity underlying those contracts. Every futures contract is a bet. Strictly speaking, however, a futures contract is not a bet on the underlying commodity itself (whatever that might mean). Rather, a futures contract is a bet on which direction the average price for the underlyingcommodity will move. So also with Eurodollar futures, which are bets on which direction the average interest rate for three-month U.S. dollar time deposits in foreign banks, represented by LIBOR, will move. In short, although it is undoubtedly correct to say that Eurodollar futures contracts are bets on LIBOR, to say this is not to embrace plaintiffs' assertion that LIBOR is...