Intervest Fin. Services v. S.G. Cowen Securities
| Decision Date | 19 June 2002 |
| Docket Number | No. 98-CV-3278.,No. 99-CV-5463.,98-CV-3278.,99-CV-5463. |
| Citation | 206 F.Supp.2d 702 |
| Parties | INTERVEST FINANCIAL SERVICES, INC., Plaintiff, v. S.G. COWEN SECURITIES CORP., Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Michael K. Coran, Ira A. Rosenau, Klehr, Harrison Harvey Branzburg & Ellers, Philadelphia, PA, William H. Rooney, Tracy Zwick, Julie O. Veit, Wilkie Farr & Gallagher, New York City, for plaintiff.
John R. Taylor, Howard Langer, Sandals Langer & Taylor, LLP, Philadelphia, PA, Edward H. Mulvihill, White & Williams, Westmont, NJ, Ralph A. Jacobs, Ralph A. Jacobs, & Associates, LLC, Philadelphia, Michael T. Starczewski, Janssen & Keenan PC, Philadelphia, PA, Theodore R. Mann, Wolf Block Schoor & Solis-Cohen, Philadelphia, PA, Tanya B. Vanderbilt, Stuart M. Gerson, Robert J. Hudock, Epstein Becker & Green, Washington, DC, Susan M. Rabii, J. Brent Hooker, Michael A. Lampert, Saul, Ewing, Remick & Saul, Phildelphia, PA, for defendant.
The litigation underlying this case began on June 25, 1998 when Bloomberg, L.P. ("Bloomberg") filed suit against InterVest Financial Services, Inc. ("plaintiff" or "InterVest") to recover approximately $100,000 in unpaid advertising fees. In addition to filing a counterclaim against Bloomberg on September 3, 1998, InterVest filed a second lawsuit on November 3, 1999, against S.G. Cowen Securities, Inc. ("defendant" or "Cowen"), Bloomberg, and eleven other defendants including Merrill Lynch & Co., Inc. ("Merrill Lynch"), J.P. Morgan Securities, Inc. ("Morgan"), Bear Stearns Co., Inc. ("Bear Stearns"), Cantor Fitzgerald Securities and several other Cantor Fitzgerald entities ("Cantor"), Deutche Bank Securities Corp. ("Deutche Bank"), Liberty Brokerage, Inc. and several other Liberty entities ("Liberty"), and Salomon Smith Barney, Inc. ("Salomon").1 In their complaint, InterVest alleges that the defendants violated Section 1 of the Sherman Act, 15 U.S.C. § 1, participated in a conspiracy in restraint of trade in violation of Pennsylvania law, and tortiously interfered with the contractual relationship between Bloomberg and InterVest. Only Cowen remains as a defendant in this case and it filed a motion for summary judgment on November 7, 2001. Plaintiff filed its opposition to that motion on December 21, 2001. On April 17, 2002, I held oral argument. After considering the arguments made by the parties and the relevant law, I will grant Cowen's motion for summary judgment.
In this case, much of the relevant information centers on the structure of the existing market for corporate and municipal bonds. Unlike common stock, no open market exists for trading these bonds. Institutional investors who wish to purchase bonds must obtain them from a relatively exclusive group of dealers, including the broker-dealer defendants. These dealers obtain their supply of bonds by executing trades with other dealers, sometimes negotiated through "inter-dealer" brokers. While some inter-dealer brokers will sell to other dealers on a fixed commission basis, the dealers do not make similar arrangements available to institutional investors. Instead, each investor must negotiate the price of purchase on an individualized basis, enabling the broker-dealers to earn a profit through the "spread"—the difference between the price they paid for the bond and the price at which they resell it to the investor. Because no open system of trading exists, the institutional investor has little knowledge of what the spread is on a particular transaction. This lack of public reporting or marketing of the bonds, gives the trading a lack of "transparency."3
InterVest sought to change that opaque system when it entered the bond market in 1993, by providing an electronic trading system where buyers and sellers could anonymously trade corporate and municipal bonds. In addition to matching buyers and sellers, InterVest offered an end to undisclosed spreads by charging a fixed commission fee known to both parties. Operating as a modem based system, InterVest conducted 400 trades and by the end of 1993 had thirty subscribers. Larry Fondren ("Fondren"), the founder and chief executive of InterVest, still had loftier goals for his company. In 1993, InterVest approached a number of bond dealers with the concept of an "InterDealer" consortium —which would allow these dealers to use the InterVest system as their own trading platform. Though several dealers met with or spoke to Fondren about the project, eventually the dealers universally rebuffed the project. A vice president at Merrill told Fondren that he hoped the company "crashes and burns," noting that the shift to a transparent system would put an end to large spreads and large profits for the traditional dealers. (ACT Note, March 17, 1993.)4 The following month, Fondren met with Ben Kuenemann of Bear Stearns who indicated that his company had no interest in dealing with InterVest and that he would "be discussing the intentions of IFS [InterVest] with other dealers." (ACT Note, April 6, 1993.) In May 1993, Fondren met with Joe Macchia of Liberty who echoed the sentiments of Merrill and Bear Stearns. Fondren also had a meeting with representatives of Cowen in June 1993. At that time Cowen also expressed concern about the InterVest system, in particular about the "equal and anonymous access" it gave to institutional investors. (ACT Note, June 11, 1993.)
Despite these early setbacks, InterVest made a significant breakthrough in 1995 when it entered into an arrangement with Bloomberg, whereby Bloomberg would carry the InterVest system on its electronic network. The Bloomberg electronic network was a vital source of information on financial markets and transactions and during the 1990s had between sixty and seventy thousand terminals placed with financial companies on both the buy and sell sides of the financial world. Though Bloomberg was considered the market leader as a provider of financial information, prior to the introduction of InterVest on the network, the system, consistent with the opaque market, did not carry any actual price information for corporate bonds. Excited about this new relationship, InterVest directed the majority of its resources to making it successful, and its investors viewed the relationship as one essential to InterVest's future success. (Dep. of Guy Naggar at 40.)
From its outset, the relationship between Bloomberg and InterVest gave rise to disagreements about the nature of their mutual obligations.5 Though the companies had entered into a lease agreement on July 15, 1995 and a rider agreement on August 31, 1995, on December 27, 1995, Charles Garcia ("Garcia"), the manager of the InterVest account for Bloomberg, contacted Fondren and indicated that troubles had arisen. According to Fondren, Garcia reported that after seeing the advertisements for the InterVest system, some other customers had complained to Bloomberg. In response to those complaints, Bloomberg had placed a moratorium on the development of the InterVest system on their network but would reimburse InterVest for its advertising expenses.6 (Dep. of Fondren at 287-294.) Bloomberg itself had previously expressed concern over the content of the ads and on October 18, 1995 one dealer, not named as a defendant in this suit, sent an e-mail to Bloomberg stating their discomfort with the InterVest concept. The sender, an employee of ABN Amro Securities, also questioned Bloomberg's support of something that directly competes with its current subscribers and concluded, "I am sure that I am not the only one that feels that way." (E-mail from Bob Mann of ABN Amro Securities to Stephanie Seward, October 18, 1995 at 8:57 A.M.)
InterVest challenged the moratorium and threatened to take legal action against Bloomberg. On January 30, 1996, after an exchange of correspondence between counsel, Bloomberg agreed to reinstitute the InterVest project. Bloomberg followed this verbal assurance with a letter on February 14, 1996, agreeing to support the InterVest product for one year from the announcement of the release. (Letter of February 14, 1996 from Garcia to Fondren.) In a second letter, on June 25, 1996, Bloomberg provided InterVest with further assurances of a commitment to establishing a corporate and municipal bond trading system. (Letter of June 25, 1996 from Mason Power to Fondren.) Despite these direct assurances, InterVest points to a series of internal e-mails at Bloomberg that demonstrate Bloomberg's hesitation about taking the InterVest system live. Nonetheless, on December 9, 1996, Bloomberg held a press conference at its New York headquarters and announced that the InterVest system would go live for the trading of government and corporate bonds by the end of that year and municipal bonds would follow shortly thereafter. (Dep. of Fondren at 318-320.) A significant amount of publicity accompanied this announcement. The New York Times ran an article in its financial section noting that the InterVest system would attempt to change the traditional bond trading system. See Floyd Norris, A Bond Trader Will Put Quotes and Trades Online, N.Y. Times, December 9, 1996, at D4. Bloomberg also posted one of its reporter's interview with Fondren on the "Bloomberg Forum." (Dep. of Fondren at 318-320.)
The following morning, on December 10, 1996, Fondren received a phone call from Garcia indicating that Bloomberg was placing another moratorium on the development of a municipal trading platform. When pressed for a reason, Fondren claims that Garcia told him that interdealer brokers had placed "tremendous heat" on Bloomberg and specifically cited pressure from defendant Cowen. Though less confident of this aspect of the conversation, Fondren also believes that Garcia began to mention another firm, Tull in Tokyo, but stopped...
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