In re Libor-Based Fin. Instruments Antitrust Litig.

• Decision Date: 25 March 2019
• Docket Number: 11 MDL 2262 (NRB)
• Parties: In re: LIBOR-Based Financial Instruments Antitrust Litigation. This Document Applies to: CASES LISTED IN APPENDIX
• Court: U.S. District Court — Southern District of New York

In re: LIBOR-Based Financial Instruments Antitrust Litigation. This Document Applies to: CASES LISTED IN APPENDIX

11 MDL 2262 (NRB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 25, 2019

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE

LIBOR VIII

Table of Contents

I. Introduction .............................................. 3

II. Background ................................................ 3

III. Plaintiffs' Motions for Leave to Amend ................... 12

1. General Legal Standard for Leave to Amend ............... 13

2. Amendments Related to Personal Jurisdiction ............. 15

2.1. Counterparty Claims ................................. 15

2.2. Indirect Counterparty Claims ........................ 21

2.3. Non-Counterparty Claims and Conspiracy Jurisdiction . 26

2.4. "Overt Acts" in Furtherance of the Conspiracy ....... 35

3. Other Amendments ........................................ 43

3.1. Lender Plaintiffs' Proposed Amendments .............. 43

3.2. NCUA's Proposed Amendments .......................... 45

3.3. FFP Plaintiffs' Proposed Amendments ................. 45

IV. Defendants' Motion to Dismiss Against Schwab and Doral ... 50

1. General Legal Standard for Motion to Dismiss ............ 50

2. Motion to Dismiss Schwab's Claims Based on Lack of Personal Jurisdiction ................................... 52

2.1. Nationwide General Jurisdiction Based on the Exchange Act's Nationwide Service of Process ................. 55

2.2. Specific Jurisdiction over Defendants in Exchange Act Claims .............................................. 59

2.3. Pendent Jurisdiction over State Law Claims .......... 64

3. Motion to Dismiss Schwab's Claims Based for Failure to State a Claim ........................................... 67

3.1. Addition of New Defendants and Claims ............... 67

3.2. Exchange Act § 10(b) Claims ......................... 70

3.3. Exchange Act § 20(a) Claims ......................... 73

3.4. Unjust Enrichment Claims ............................ 76

3.5. Tortious Interference Claims ........................ 79

4. Motion to Dismiss Doral's Claims for Lack of Personal Jurisdiction ............................................ 82

5. Motion to Dismiss Doral's Claims for Failure to State a Claim ................................................... 84

5.1. Fraud, Tortious Interference, and Negligent Misrepresentation Claims ............................ 84

5.2. Donnelly Act Claim .................................. 88

5.3. Sherman Act Claims .................................. 90

V. Defendants' Motion for Judgment on the Pleadings ........... 91

1. General Legal Standard for Judgment on Pleadings ........ 93

2. Instruments Issued by Panel Bank Defendants' Subsidiaries/Affiliates ................................. 94

3. Instruments Issued by Panel Banks but Sold by Their Related or Unrelated Subsidiaries/Affiliates ............ 99

VI. Conclusion ............................................... 104

I. Introduction

This Memorandum and Order, our eighth extensive opinion in this consolidated multi-district litigation ("MDL"), addresses eight different motions post-dating the Second Circuit's decision in Charles Schwab Corp. v. Bank of America Corp., 883 F.3d 68 (2d Cir. 2018) ("Schwab"), in which the Circuit reviewed de novo this Court's decision to dismiss all claims brought by Charles Schwab Corporation and its related entities ("Schwab"), see In re LIBOR-Based Fin. Instruments Antitrust Litig., 2015 WL 6243526 (S.D.N.Y. Oct. 20, 2015) ("LIBOR IV"). Since many of the motions have been brought in response to Schwab, we summarize the relevant rulings in the decision before addressing each motion on its merits.

II. Background

The nature of LIBOR, its alleged manipulation, and the parties in this case have been explored in our prior opinions.¹ Thus, we assume familiarity with the facts. Likewise, the unique procedural journey of Schwab's action² needs not be repeated here as it wasdiscussed at great length in LIBOR IV, see 2015 WL 6243526, at *10, *18, and in Schwab, see 883 F.3d at 80-81.

In LIBOR IV, we dismissed Schwab's complaint in its entirety.³ On appeal, Schwab argued that we erred in dismissing: (1) its state law claims for lack of personal jurisdiction, see LIBOR IV, 2015 WL 6243526, at *19-38; (2) its fraud claims relating to fixed-rate instruments for failure to state a claim, see id. at *65; (3) its Exchange Act claims for failure to state a claim, see id. at *70; and (4) some of its unjust enrichment claims as untimely, see id. at *127-28, *177. See Schwab, 883 F.3d at 81.

In reviewing our decision to dismiss Schwab's state law claims for lack of personal jurisdiction, the Circuit made rulings that are applicable to three categories of defendants: (1) defendants who "allegedly solicited and sold debt instruments directly toSchwab in California" ("Counterparty defendants"), Schwab, 883 F.3d at 79; (2) defendants who "allegedly sold debt instruments indirectly to Schwab through 'broker-dealer subsidiaries or affiliates'" ("Indirect Counterparty defendants"), id.; and (3) defendants who did not transact with Schwab but "allegedly conspired with the other Defendants to manipulate LIBOR to Schwab's detriment" ("Non-Counterparty defendants"), id.

As to Counterparty defendants, the Circuit found that "[t]he solicitation of and sale of financial instruments to Schwab in California" were sufficient to establish personal jurisdiction.⁴ Id. at 83. However, the Circuit continued, "sales in California do not alone create personal jurisdiction for claims premised solely on Defendants' false LIBOR submissions in London" because Schwab "must establish the court's jurisdiction with respect to each claim asserted." Id. (quoting Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 24 (2d Cir. 2004)). In addition, the Second Circuit held that Schwab's allegations were "insufficientlyindividualized to make out a prima facie case of personal jurisdiction over" Citibank, HSBC, and JPMorgan Chase because "each of those 'Defendants' is actually two distinct Defendants - a parent and a wholly owned subsidiary"; Schwab must put forth sufficiently individualized allegations against each defendant so that this Court could determine whether defendant "sold directly to Schwab and, if not, whether [defendant] should be considered an indirect seller or non-seller (or whether it belongs in this lawsuit at all)." Id. at 84.

As to Indirect Counterparty defendants, the Circuit found Schwab's allegations of agency relationship insufficient. In order to establish specific jurisdiction over a defendant based on its affiliate's or subsidiary's activities in California, Schwab must plausibly allege that the subsidiary or affiliate acted as the defendant's agent in California "for the benefit of, with the knowledge and consent of, and under some control by, the nonresident principal." Id. at 85 (quoting Grove Press, Inc. v. Angleton, 649 F.2d 121, 122 (2d Cir. 1981)).

As to Non-Counterparty defendants, the Circuit adopted the three-factor test for alleging a conspiracy theory of jurisdiction set forth in Unspam Technologies, Inc. v. Chernuk, 716 F.3d 322, 328 (4th Cir. 2013). Schwab must allege that: "(1) a conspiracy existed; (2) the defendant participated in the conspiracy; and (3) a co-conspirator's overt acts in furtherance of the conspiracy hadsufficient contacts with a state to subject that co-conspirator to jurisdiction in that state." Schwab, 883 F.3d at 87. In alleging conspiracy jurisdiction, Schwab could not rely on a defendant's sale of LIBOR-based instruments as an overt act in furtherance of the pled conspiracy because "the conspiracy to manipulate LIBOR had nothing to do with the California transactions, and there is thus no reason to impute the California contacts to the co-conspirators." Id. Finally, the court rejected Schwab's assertion that personal jurisdiction could be established over all defendants based on "the obvious and direct effects of [defendants' manipulation of LIBOR] in California." Id. Mere foreseeability that the effects of LIBOR manipulation would "reach an economy as large as California's does not mean that Defendants' conduct in London was 'expressly aimed' at that state." Id. at 88.

Turning to our dismissal of Schwab's fraud and Exchange Act claims concerning fixed-rate notes, the Second Circuit affirmed our decision because fixed-rate notes "do not reference LIBOR at all." Id. at 91. Since Schwab did not plausibly allege that defendants made false LIBOR submissions "[to] induc[e] purchases of fixed-rate instruments," id. at 92, or "in connection with Schwab's purchase of fixed-rate instruments," id. at 96, Schwab could not assert state law or securities fraud claims concerning fixed-rate notes. The Circuit noted: "When Schwab purchased fixed-rate instruments, it received exactly what it expected." Id.

The Circuit, however, reversed our decision to dismiss Schwab's Exchange Act claims concerning floating-rate notes. In LIBOR IV, we found that Schwab's claims failed at the causation stage because, if LIBOR was "persistently suppressed when Schwab bought LIBOR-based bonds, then the bond's expected future interest payments would also have been suppressed." 2015 WL 6243526, at *70. Thus, since a bond's price is "equal to the present value of its expected future interest and principal payments, the bond's purchase price would also necessarily have been suppressed, so that Schwab may reap a windfall now that suppression has ended." Id. The Circuit disagreed, finding that "[a]lthough a depressed LIBOR that caused expectations of future interest payments to decrease might result in lock-step reductions in the price of floating-rate instruments," such an effect was not certain and could not be assumed at the pleading stage. Schwab, 883 F.3d at 93. Nonetheless, finding that Schwab's allegations of loss causation were unclear, the court instructed Schwab to "add allegations clarifying the loss causation...