In this post, we cover recently filed briefing in In Re: Libor-Based Financial Instruments Antitrust Litigation, 11-MD-02262 (“In re Libor“), the multi-district litigation in the Southern District of New York comprised of actions filed across the United States since 2011 relating to manipulation of LIBOR (the London Interbank Offered Rate) for the U.S. dollar.
Some may find it hard to believe that there can still be pre-trial dispositive motions being litigated in cases that have been around for seven years; yet, on July 13, 2018, LIBOR Defendants Bank of America, N.A. and JP Morgan Chase Bank, N.A. (together, the “OTC Defendants”) moved for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c) to dismiss the OTC Plaintiff Class’ antitrust claims based on transactions with, or on which interest is paid by, subsidiaries or affiliates of a U.S. Dollar LIBOR panel bank. The OTC Plaintiff Class (“OTC Plaintiffs”) filed an opposition to the OTC Defendants’ motion on August 9. We will summarize the arguments made by both parties in their respective motions.
If you are generally unfamiliar with LIBOR, it may be worth reading our June 6, 2018, post, which provided a general overview of the factual allegations in In re Libor, first, before reading on here. It is important to remember that the LIBOR interest rate was calculated using daily submissions from banks that made up a panel composed by the British Bankers Association. The OTC Plaintiffs generally consist of those who bought an interest rate swap or bond/floating rate note tied to the LIBOR rate directly from a panel-member bank (or one of its affiliates) (although the actual class definition is more complicated than that).
Requirements for Antitrust Standing Generally
As stated in a previous decision in In re Libor, in order to have standing to assert antitrust claims, it is required that a plaintiff allege “that it (1) has experienced antitrust injury and (2) is an efficient enforcer of the antitrust laws . . . .” In re Libor (“LIBOR VI”), 2016 WL 7378980 at *1 (S.D.N.Y. Dec. 20, 2016). There are four factors that guide whether a plaintiff will be an efficient enforcer of antitrust laws: “(1) the directness or indirectness of the asserted injury, which requires evaluation of the chain of causation linking appellants’ asserted injury and the Banks’ alleged price-fixing; (2) the existence of more direct victims of the alleged conspiracy; (3) the extent to which appellants’ damages claim is highly speculative; and (4) the importance of avoiding either the risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other.” Gelboim v. Bank of Am. Corp., 823 F.3d 759, 778 (2nd Cir. 2016) (quoting Associated Gen. Contractors of Calif., Inc. v. Calif. State Council of Carpenters, 459 U.S. 519, 540 – 545 (1983)). The efficient enforcer test is meant to guide “whether the putative plaintiff is a proper party to perform the office of a private attorney general and thereby vindicate the public interest in antitrust enforcement.” Id.
The OTC Defendants’ Argument
The OTC Defendants contend that the OTC Plaintiffs do not have standing to assert antitrust claims for the following types of transactions: 1) where the plaintiff’s only counter-parties were panel members’ affiliates or subsidiaries, but not any actual panel member; 2) transactions where the issuer was not the panel member, but rather an affiliate or subsidiary of the panel member, and the panel member’s only role was as that of a seller; and 3) where the panel member was an issuer, but the seller was an affiliate or another panel member’s affiliate.
The OTC Defendants argue that the decision to incorporate the LIBOR rate the first type of transaction would be made independent of the panel member and is therefore an “independent decision” that severs the causal chain required by the efficient enforcer test’s causation factor. The OTC Defendants cite to the Court’s decision in LIBOR VI; in that case, the Court ruled that a class of bondholder plaintiffs could not be an efficient enforcer where the plaintiffs’ counter-party was not a panel bank, and dismissed plaintiffs’ antitrust claims accordingly.
The OTC Defendants also point to the Court’s holdings from LIBOR VI that plaintiffs have not pleaded facts to show that the panel members participated in the suppression of LIBOR, and that panel member banks are the proper defendant for persistent suppression claims. Although they admit that those holdings pertained to the question of who the appropriate defendants are, not whether plaintiffs are efficient enforcers of antitrust law, the OTC Defendants submit that the reasoning should nevertheless apply here. Finally, the OTC Defendants contend that the OTC Defendants have not asserted any allegations to suggest that the panel member’s affiliates and subsidiaries were not independent.
The OTC Plaintiffs’ argument that the OTC Plaintiffs have no standing to assert antitrust claims for the second type of transactions uses similar reasoning as to that of the first type of transactions. According to the OTC Defendants, the OTC Plaintiffs have not alleged facts to suggest that where the panel member was a mere seller, that it would have been the one to decide to incorporate LIBOR rates into the transaction. Since the decision to incorporate LIBOR is independent of the panel member, and the causal chain required by the efficient enforcer test’s causation factor is severed, the OTC Plaintiffs do not have antitrust standing for those transactions.
For their argument that there is no standing for antitrust claims where the panel member was an issuer, but the seller was an affiliate or another panel member’s affiliate, the OTC Defendants rely on Illinois Brick Co. v. Illinois, 431 U.S. 720, 736 (1977). In that case, the Supreme Court ruled that, with certain exceptions (which the OTC Defendants argue are inapplicable), “only direct purchasers have standing to bring civil antitrust claims.” In other words, to have standing to bring an antitrust claim under the Clayton Act, one must purchase the price-fixed product directly from the alleged co-conspirator.
Although OTC Defendants concede that there is an exception under this rule for when the defendant owns or controls the entity that sold the goods, they argue that the exception only applies where there is such functional unity between the defendant and the seller-entity that the defendant controls the seller-entity and sets the prices of the product in question. The OTC Defendants point out that the OTC Plaintiffs have not alleged that the panel members decided to incorporate LIBOR in these type of transactions. The Illinois Brick rule therefore prohibits standing to assert antitrust claims where the panel member was only an issuer.
The OTC Plaintiffs’ Argument
The OTC Plaintiffs argue in response by first contesting that panel members were not involved and did not benefit from LIBOR-based transactions involving their subsidiaries and affiliates such that there is no causal link between the panel members and transactions involving their affiliates and subsidiaries. They contend that although the Court previously found that defendants had no control over, input in, and profit from the Bondholder’s LIBOR-based transactions, the OTC Defendants in fact did control, have input in, and profit from the OTC Plaintiffs’ transactions. They point to published reports from Bank of America and JP Morgan Chase & Co. showing that the OTC Defendants’ subsidiaries and/or affiliates served to manage interest rate risk across the entire corporate structure. The OTC Plaintiffs also note that the equivalent of the treasury department set “transfer pricing” across different departments and ensured that the customer-facing segments of the main bank did not buy or sell instruments above the panel member’s LIBOR submission. Finally, they note that in LIBOR VI, the only case that the OTC Defendants relied on besides Illinois Brick, the Court specifically stated that the “antitrust laws do not require a plaintiff to have purchased directly from a defendant to have antitrust standing. 2016 WL 7378980 at *16.
The OTC Plaintiffs then note that the OTC Defendants ignore the other three factors in the efficient enforcer test. Since there is no difference in motivation of enforcement of antitrust laws between those who transact only with a panel member and those who transact with a subsidiary, the theory of damages is no more speculative when it comes to transactions with subsidiaries and affiliates and the court has already said that there is no danger of duplicative recovery when damages are tied to particular transactions.
Every factor in the efficient enforcer test, according to the OTC Plaintiffs, goes in their favor.
The OTC Plaintiffs also cite Arandell Corp. v. Centerpoint Energy Servs., 2018 WL 3716026 (9th Cir. Aug. 6, 2018), to support the assertion that parents and wholly-owned subsidiaries are treated as a single enterprise when they engage in coordinated activity for an illegal, anti-competitive purpose. In Arandell, the Court held that a subsidiary-gas seller could be liable for advancing anti-competitive conduct and named as a defendant selling gas at prices fixed by its parent and the parent and subsidiary shared profits with each other. According to the OTC Plaintiffs, since the panel members fixed the LIBOR rates, they and their respective affiliates and subsidiaries who sold and issued the transactions should be treated as a single enterprise.
The OTC Plaintiffs also push back against the OTC Defendants’ argument that there should not be antitrust standing where the panel members were mere sellers. The case law that the OTC Defendants cited to support that argument concerned the liability of agents and brokers for state-law breach of contract and unjust enrichment. Since the common law requirement of a contractual or quasi-contractual relationship is not relevant to the question of who is the proper plaintiff to enforce antitrust laws, according to the OTC Plaintiffs, those cases are inapplicable.
The OTC Plaintiffs also contend that the direct purchaser rule under Illinois Brick is inapplicable, since that rule applies to fixed-priced goods, so as to prevent duplicative recovery by upstream and downstream purchases of the same good. Since class members do not ever receive the same suppressed interest payment, the rule does not apply to financial benchmark-fixing cases. Moreover the “practical considerations of double recovery, complex apportionment, and over-deterrence are not present here as they are in Illinois Brick.
Finally, the OTC Plaintiffs argued that their antitrust claims should not be dismissed while material factual disputes are pending. The motion raises issues as to the banks’ internal structure, the issuance of LIBOR swaps and bonds, and the sharing of revenues. Discovery thus far has been limited, according to the OTC Plaintiffs. They argue that they should be allowed to take further discovery on the aforementioned topics before their claims are dismissed.
Remainder of Briefing Schedule
Under the current briefing schedule, the OTC Defendants’ replies are due August 24, 2018. Stay tuned to this blog, as we will be sure to inform you as to any new development from the OTC Defendants’ reply.
This post was written by John F. Whelan.
We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at firstname.lastname@example.org or John F. Whelan at email@example.com or call John Lundin or John Whelan at (212) 344-5400.
Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.