In re Libor-Based Fin. Instruments Antitrust Litig.

• Decision Date: 03 November 2015
• Docket Number: 11 MDL 2262 (NRB)
• Parties: In re: LIBOR-Based Financial Instruments Antitrust Litigation. This document applies to: INDIVIDUAL 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:

INDIVIDUAL CASES LISTED IN APPENDIX.

11 MDL 2262 (NRB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

November 3, 2015

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE

LIBOR V

TABLE OF CONTENTS

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

II. Background ............................................ 4

1. Facts ................................................ 4

1.1. Student Plaintiffs ............................... 5

1.1.1. Nathan Weglarz and Jerry Weglarz .............. 5

1.1.2. Stephanie Nagel ............................... 6

1.1.3. Theory of Damages ............................. 7

1.2. Lender Plaintiffs ................................ 8

1.3. Mortgagor Plaintiffs ............................. 8

1.4. OTC Plaintiffs .................................. 10

1.4.1. TCEH ......................................... 10

1.4.2. SEIU ......................................... 10

1.4.3. Highlander ................................... 11

2. Procedural History .................................. 12

2.1. Prior Rulings ................................... 12

2.1.1. Consolidation ................................ 12

2.1.2. Merits Holdings .............................. 14 2.2. Pending Motions ................................. 15

III. Pleading Standards .................................. 15

IV. Student Loan Plaintiffs .............................. 17

1. Personal Jurisdiction ............................... 17

2. Fraud ............................................... 18

3. LIBOR As a Valid Interest Rate ...................... 20

4. Conclusion .......................................... 23

V. Lender Plaintiffs ..................................... 23

1. Personal Jurisdiction ............................... 23

2. Damages ............................................. 25

3. Scope of Expected Reliance .......................... 30

4. Justifiable Reliance ................................ 31

5. Statute of Limitations .............................. 32

5.1. Government Development Bank of Puerto Rico ...... 32

5.2. Directors Financial Group ....................... 34

6. Conclusion .......................................... 35

VI. Mortgagor Plaintiffs ................................. 36

1. Personal Jurisdiction ............................... 36

2. Fraud Claims Against Bank of America ................ 39

2.1. Pleading ........................................ 39

2.2. Preemption ...................................... 39

3. Fraud Claims Against Other Panel Banks .............. 45

4. Statute of Limitations .............................. 45

5. Conclusion .......................................... 46

VII. OTC and Exchange-Based Plaintiffs ................... 46

1. Personal Jurisdiction ............................... 46

1.1. Waiver of Personal Jurisdiction Arguments ....... 46

1.2. OTC Plaintiffs .................................. 49

1.3. Exchange-Based Plaintiffs ....................... 50

2. New OTC Plaintiffs .................................. 54

2.1. TCEH ............................................ 54

2.1.1. Statute of Limitations ....................... 54

2.1.2. Counterparty Requirement and Agency Pleading . 56

2.2. SEIU ............................................ 58

2.2.1. Statute of Limitations ....................... 582.2.2. Counterparty Requirement and Agency Pleading . 60

2.3. Highlander Realty ............................... 61

2.4. Jennie Stuart ................................... 63

2.5. Miami Children's Hospital ....................... 66

XIII. Conclusion ......................................... 66

I. GENERAL INTRODUCTION

This consolidated multi-district litigation (MDL) arises from allegations that over a dozen major banks manipulated the London Interbank Offer Rate (LIBOR), a set of interest-rate benchmarks that underlie trillions of dollars of financial instruments, in order to profit in their own trading and to maintain their reputations for creditworthiness.¹ This MDL involves U.S. Dollar LIBOR only. Cf. Laydon v. Mizuho Bank, Ltd., No. 12-cv-3419 (GBD) (S.D.N.Y.) (Yen LIBOR and the Tokyo Interbank Offer Rate); Sonterra Capital Master Fund Ltd. v. Credit Suisse Grp. AG, No. 15-cv-871 (SHS) (S.D.N.Y.) (Swiss Franc LIBOR).

In four earlier opinions,² we tested the legal sufficiency of complaints filed by three putative classes and several individualplaintiffs. Our key holdings sustained some fraud, contract, unjust enrichment, and Commodities Exchange Act³ claims, while rejecting antitrust and RICO⁴ claims.

In this, our fifth extensive opinion, we focus on the legal sufficiency of complaints filed on behalf of three putative classes.⁵ We also address the OTC Plaintiffs motions to add new plaintiffs to their consolidated complaint and defendants' motion to dismiss the complaints of the New Classes, the new OTC Plaintiffs, and the Exchange-Based Plaintiffs for lack of personal jurisdiction.⁶

II. BACKGROUND

1. Facts

The facts underlying this case have been thoroughly discussed in LIBOR I, 935 F. Supp. 2d at 677-85, and elaborated upon inLIBOR II, III, and IV. Here, we assume familiarity with LIBOR and with allegations of LIBOR manipulation, and we present only the new allegations set forth by the New Classes.

1.1. Student Plaintiffs

1.1.1. Nathan Weglarz and Jerry Weglarz

Nathan Weglarz took out, and Jerry Weglarz co-signed, a student loan in 2007 at an interest rate tied to LIBOR. First Consol. Compl. ("Student Loan Complaint") ¶¶ 64-65, ECF No. 835. The loan was issued by JPMorgan Chase Bank, N.A., and is currently held by the National Collegiate Student Loan Trust 2007-1 (the "NCSLT"). Student Loan Compl. ¶¶ 12, 64, 69.

Attached to the Student Loan Complaint is a "Note Disclosure Statement" from 2007 that appears to match the Student Loan Complaint's description of the loan, see Student Loan Compl., Ex. E., but plaintiffs have advised us that this loan document is not in fact the one upon which they are suing.⁷ Oral Arg. Tr. ("Tr.") 89:15-19, ECF No. 1199. Accordingly, we rely only on the text of the Student Complaint.

Both Weglarzes are now Illinois residents, and we presume that they were Illinois residents when they signed Nathan Weglarz's loan.

1.1.2. Stephanie Nagel

Stephanie Nagel took out a student loan from Bank of America, N.A., in either 2004 or 2008 at an interest rate tied to LIBOR. See Student Loan Compl. ¶¶ 75-76 (stating that Nagel borrowed from Bank of America in 2004); Loan Request/Credit Agreement ("2008 Nagel Loan Agreement"), Student Loan Compl., Ex. F (loan with Bank of America, N.A., disbursed Jan. 9, 2008); Non-Negotiable Credit Agreement ("2004 Nagel Loan Agreement"), Student Loan Compl., Ex. F (loan with Bank One, N.A., signed Aug. 3, 2004).⁸ The agreement may call for the application of federal and California law, see 2008 Nagel Loan Agr. ¶ L.1., even though Nagel appears to have been a Wisconsin resident at the time. See 2008 Nagel Loan Agr. at Signature Page (listing Nagel's employer as Wisconsin Public Service); Student Loan Compl. ¶ 8 (alleging that Nagel is currently a Wisconsin resident); Student Loan Compl. ¶¶ 120-22 (alleging that Bank of America engaged in trade and commerce within Wisconsin); but cf. Student Loan Compl. ¶ 79 (stating, apparentlyin error, that Nagel's loan calls for application of Rhode Island law).

1.1.3. Theory of Damages

The Student Loan Plaintiffs are borrowers and, as such, were not harmed by the persistent suppression of LIBOR.⁹ Nor have they attempted to plead injury from sporadic trader-based manipulation, although their complaint is replete with allegations of trader-based Yen LIBOR manipulation. Instead, the Student Loan Plaintiffs argue that their LIBOR-based loans are unconscionable or invalid under state laws that forbid a lender from controlling a loan's floating interest rate. Student Loan Compl. ¶¶ 112, 119. Because they view the floating-rate portions of their interest payments as unlawful, they seek to reform their loan agreements so that only the fixed portion of their interest rate accrues. See Tr. 93:14-21. The Student Loan Plaintiffs also bring common law fraud claims on the theory that issuers "specif[ied] a rate indexed to LIBOR at a time when [they were] manipulating such rate," and "represent[ed] that such rate was objective and outside the control of the lender." Student Loan Compl. ¶¶ 127-28.

Separately, the Student Loan Complaint states that the National Collegiate Student Loan Trust 2007-1 (the "Trust"), whichcurrently holds the Weglarzes' loan, "took the loans tainted by the fraud of JP Morgan Chase Bank, N.A." Student Loan Compl. ¶ 131.

1.2. Lender Plaintiffs

The Lender Plaintiffs are three institutions, The Berkshire Bank ("Berkshire"), the Government Development Bank for Puerto Rico ("GDB"), and Directors Financial Group ("Directors"). Consol. Second Am. Class Action Compl. ("Lender Complaint") ¶¶ 12-14, ECF No. 836. Berkshire is a bank chartered in New York. Lender Compl. ¶ 12. GDB is a Puerto Rican bank that loans money to private and public entities and serves as the "fiscal agent and financial advisor for the Puerto Rican Government." Lender Compl. ¶ 13. Directors is a "finance lender." Lender Compl. ¶ 14. Each lent money at interest rates tied to LIBOR, and each alleges receiving artificially low interest payments.

The Lender Complaint does not reveal when the plaintiffs extended loans, to whom, or for what purposes. Counsel represented at oral argument that the plaintiffs "issu[ed] and purchas[ed] mortgage loans" "[o]r other loans," and that "I think . . . the Puerto Rico Government Development Bank does loans beyond mortgages." Tr. 71:7-8, 71:10-12.

1.3. Mortgagor Plaintiffs

The Mortgagor Plaintiffs are four individuals, Carl Payne, Kenneth Coker, Carlito Rivera, and Philip Maresca, who eachobtained adjustable-rate mortgages tied to LIBOR. The Mortgagor Plaintiffs allege that banks set adjustable-rate margins in inverse relation to the...