Posted: October 26, 2018

Mexican Government Bond Defendants’ Motion to Dismiss Part Two

In this post, we follow up on our October 2, 2018, post, which covered arguments made by the Defendants in In re Mexican Government Bonds Antitrust Litigation, 18-cv-02830 (In re MGB) to dismiss Plaintiffs’ Consolidated Amended Class Action Complaint (the “Complaint”) concerning whether Plaintiffs made plausible allegations of an antitrust conspiracy and made adequate allegations for individual defendants. We now summarize the remaining arguments made in Defendants’ motion, which concern whether plaintiffs have established antitrust standing, have failed to state a claim for unjust enrichment, and whether Plaintiffs’ claims are time-barred and barred by the Foreign Trade and Antitrust Improvements Act.

As before, we commend your attention to our July 30, 2018, post, which summarizes the factual allegations in the Complaint.

Failure to Allege Antitrust Standing

In order to have standing to assert antitrust claims, it is required that a plaintiff allege that it has experienced an “antitrust injury” and that it be an efficient enforcer of antitrust laws. Defendants assert that Plaintiffs’ antitrust standing is insufficient on both grounds.

Antitrust Injury: For purposes of antitrust standing, an “antitrust injury” must be 1) an injury-in-fact; 2) that has been caused by the violation; and 3) that is the type of injury contemplated by the statute. Defendants argue that Plaintiffs have failed to adequately plead that each of their various theories as to Defendants’ collusion actually resulted in injury to Plaintiffs.

Auction Rigging Conspiracy: Plaintiffs allege that Defendants rigged the weekly auctions of Mexican Government Bonds (MGBs) conducted by the Mexican Government by sharing information with each other and coordinating bids to fix prices. Defendants argue that Plaintiffs have failed to show how the allegedly suppressed auction prices raised prices Plaintiffs paid on the secondary market such that injury was caused to them.

Post Auction Inflation: Plaintiffs alleged that prices were inflated by Defendants during the post-auction period of the day of the MGB auction by the Mexican Government, but according to Defendants, Plaintiffs do not allege that prices were inflated “on Non-Auction Days, when Defendants do not have new inventory of MGBs to sell.” Defendants argue that since Plaintiffs do not plead that they bought the MGBs on the day they were auctioned, or, to the extent they bought MGBs on auction days, that they bought tenors that were actually auctioned that day, Plaintiffs have failed to show how this alleged inflation caused injury to Plaintiffs.

Spread-Widening Conspiracy: Plaintiffs allege that after the MGBs were initially offered on the secondary market, Defendants agreed to artificially widen the “bid-ask spread,” the difference between the bid price that a Defendant would agree to buy a particular type of MGB from a consumer and what a Defendants would agree to sell that same type of MGB for, as listed in the “two-way quote.” Plaintiffs further allege that because of this, they were “overcharged each time they purchased MGBs from Defendants and underpaid each time they sold MGBs to Defendants.” Defendants argue that this is a conclusory assertion of injury, since the charts included in the Complaint only show “median” bid-ask spreads from 2006 through 2017, and do not therefore show that the bid-ask spread was widened for all transactions over the course of 11 years, or at least identify a single, particular transaction that was.

Bondes D: There are four types of MGBs, each of which differ from each other in how interest is paid to the holder. According to Defendants, Plaintiffs do not actually allege that they themselves bought one particular type of MGB, Bondes D. Therefore, Defendants argue, Plaintiffs could not have suffered any injury as to those bonds.

Efficient Enforcer. There are four factors which guide whether a plaintiff will be an efficient enforcer of antitrust laws: i) the directness of the plaintiff’s injury, (ii) the existence of more direct victims of the anticompetitive conduct, (iii) the extent to which the plaintiff’s alleged damages are “highly speculative,” and (iv) the potential for duplicative recovery or complex questions regarding apportionment of damages.

According to Defendants, Plaintiffs seek to certify a class which would include all persons who have entered into a trade for MGBs. This would include what Defendants call “umbrella” claims, meaning claims arising out of trades with non-Defendants. Defendants attack Plaintiffs’ ability to be an efficient enforcer of umbrella claims on several grounds.

Defendants assert that causation of injury by Defendants for umbrella claims is too attenuated for Plaintiffs to be efficient enforcers of such claims. Plaintiffs and non-defendants are independent actors; in such transactions, Plaintiffs were not required to transact at a given bid/ask price or even required to interact with non-defendants at all. The chain of causation between Defendants’ alleged suppression of bid/ask prices and prices of non-defendant transactions are thus severed. Defendants rely on a string of cases which they contend hold that such attenuation prohibits plaintiffs from asserting antitrust standing for umbrella claims.

Defendants also argue that Plaintiffs cannot be efficient enforcers of umbrella claims because parties that traded directly with a Defendant are “more direct victims” of the alleged conspiracy. They additionally claim that it would be “exceptionally complex” to isolate impact of Defendants’ conduct on umbrella claims, as one can only speculate as to what the umbrella claims would be, absent manipulation.

Finally, Defendants assert that allowing Plaintiffs antitrust standing for umbrella claims would impose liability on Defendants disproportionate to their gains, since Defendants would be liable to any non-party who traded with Plaintiffs, going beyond the scope of the Sherman Act’s intent.

Foreign Trade and Antitrust Improvements Act

The Foreign Trade and Antitrust Improvements Act (“FTAI”) excludes conduct involving trade or commerce with foreign nations from Sherman Act claims. The FTAI does not apply to i) import activity involving foreign commerce or ii) to conduct that has a “direct, substantial, reasonably foreseeable effect” on domestic or import commerce and gives rise to a claim under the Sherman Act (known as the ii. “Domestic Effects Exception”). The Domestic Effects Exception requires that there be a “reasonably proximate causal nexus” between overseas conduct and alleged domestic effects.

Defendants argue that neither exception can apply to Plaintiffs’ allegations that Defendants rigged the auctions in Mexican run by Mexican authorities at which the MGB were originally sold to Defendants. Those transactions only took place between Mexican market-maker entities and the Mexican government, making the auctions wholly foreign transactions to which the import exception cannot apply. Defendants also note that Plaintiffs have not even plead that the Domestic Effects Exception applies, but argue that even if they had, such alleged manipulation of the Mexican auctions would only have limited, indirect, effects on transactions in U.S., not “substantial” and “reasonably foreseeable” effects required for the exception to apply.

Unjust Enrichment

Defendants argue that Plaintiffs’ unjust enrichment claims should be dismissed for several reasons: First, Plaintiffs’ only basis that Defendants were “unjustly” enriched are based upon the conspiracy allegations, which are defective in and of themselves for being conclusory (as further explained in our previous post). Second, the unjust enrichment claims are duplicative of Plaintiffs’ other claims. Third, the claims are based upon transactions between the parties which are governed by contracts, and unjust enrichment is only available where there is no actual agreement between the parties. Finally, unjust enrichments claims do not apply to any transactions with which the Plaintiffs did not deal directly with the Defendants.

Statute of Limitations

Sherman Act claims are subject to a four-year statute of limitations, which runs from when the cause of action accrues, not from a plaintiff’s discovery of the action. The cause of action would thus run, according to Defendants, when the MGB transaction between the parties occur and plaintiff pays an anticompetitive price. Since Plaintiffs filed their complaint on March 30, 2018, that would claims based on transactions before March 30, 2014 would be time-barred. The statute of limitations can be tolled if Defendants fraudulently concealed facts underlying Plaintiffs’ claims, which Plaintiffs allege that the Defendants in fact did. However, fraudulent concealment can only be a basis for tolling the statute of limitations if it is done by affirmative acts of concealment or if it was done as part of a “self-concealing” conspiracy.

Defendants argue that Plaintiffs have failed to adequately plead fraudulent concealment so as to allow their claims to be tolled. All that Plaintiffs allege, according to Defendants, are that Defendants “(1) secretly disseminat[ed] confidential bidding schedules to each other and agree[d] on bids in MGB auctions; (2) implicitly represent[ed] that each Defendant was bidding competitively in the auction for MGB such that the final price represented a competitive auction; and (3) charg[ed] inflated spreads to customers without disclosing that the charges reflected an agreed price set by Defendants rather than a competitive price.”

Plaintiffs’ allegations of fraudulent concealment fail, according to Defendants, because they are not plead with particularity, as required by Rule 9(b), and, separately, they do no allege any acts of concealment separate from those that form the basis of their claim. Defendants not only contend that Plaintiffs have failed to show that the nature of the conspiracy is “self-concealing,” but also assert that Plaintiffs’ own allegations that Defendants’ alleged collusion caused “dramatic” price changes on auction days that were absent on non-auction days show that the existence of the alleged conspiracy was apparent from publicly available information. Defendants also note that Plaintiffs rely on public reports from as early as October 2013. Defendants assert that these public reports should have been sufficient to put Plaintiffs on notice so as to cause the statute of limitations to run. Otherwise, Plaintiffs would have “it “both ways,” asserting on one hand that there are public reports which evince Defendants’ conspiracy, but on the other asserting that Defendants’ conspiracy is self-concealing such that the statute of limitations should be tolled.

Remainder of Briefing Schedule

Under the current briefing schedule, Plaintiffs opposition is due on or by November 16, 2018. Stay tuned to this blog, as we will be sure to inform you as to any new developments from Plaintiffs’ opposition.

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 or John F. Whelan at or call John Lundin or John Whelan at (212) 344-5400.

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