Posted: December 10, 2020

Mexican Government Bond Litigation Update: Jurisdictional Issues Result in Dismissal

We write to update you on a recent decision granting motion to dismiss Plaintiffs’ Second Consolidated Amended Class Action Complaint (“SAC”) for lack of personal jurisdiction and improper venue issued by Judge Oetken on November 30, 2020 in the consolidated actions in the Southern District of New York known as In re Mexican Government Bonds Antitrust Litigation, 18-cv-02830 (In re MGB), which relates to allegations of a conspiracy among several banks to inflate the price of Mexican Government Bonds, debt securities issued by the Mexican government at regularly scheduled weekly auctions. The Court’s decision is available here.

Relevant Factual and Procedural Background:

The allegations in Plaintiffs’ Consolidated Amended Complaint were previously summarized in this blog here. The Consolidated Amended Complaint was dismissed by the Court on September 30, 2019 for lacking individualized allegations as to each defendant. The Court also dismissed as moot the motion by certain defendants to dismiss the Consolidated Amended Complaint for lack of personal jurisdiction.

Plaintiffs requested leave to file the SAC, arguing that chatroom transcripts, a summary from Comisión Federal de Competencia Económica’(“COFECE “) of the results of its investigation into Defendants, and transaction-level data received since the filing of their Consolidated Amended Complaint (later revealed to have been given to Plaintiffs pursuant settlement agreements with affiliates of Barclays PLC and JPMorgan Chase & Co.) would allow them to plead individualized allegations as to each defendant. Plaintiffs were granted the requested leave, and filed the SAC, which purportedly incorporated the aforementioned new evidence.

The Consolidated Amended Complaint named both U.S. based and foreign entities as defendants. The SAC, however, only named foreign entities as defendants, all of whom are banks based in Mexico.

The allegations in the SAC relevant to Defendants’ motion to dismiss for lack of personal jurisdiction are that Defendants would use the New York sales desk of non-party affiliates and broker-dealer affiliates to arrange trades with U.S. customers. Specifically, the New York sales desk would forward requests for prices from U.S. customers to the Defendants, and Defendants would give the price to the sales desk, so the sales desk could offer the price to the U.S. customer. The actual sales transaction was then completed using a broker-dealer.

Legal Arguments and Court’s Decision

Defendants argue that plaintiffs have failed to make a prima facie showing that jurisdiction exists. Such a showing requires “(1) proper service of process upon the defendant; (2) a statutory basis for personal jurisdiction; and (3) accordance with constitutional due process principles.”

Defendants only attack Plaintiffs’ exercise of personal jurisdiction on the grounds of constitutional due process. Inquiry into whether the exercise of personal jurisdiction comports with constitutional due process entails an analysis of whether defendants have sufficient minimum contacts with the forum state and whether personal jurisdiction is reasonable under the circumstances. Since Plaintiffs do not claim general jurisdiction, only specific jurisdiction, which is when the suit relates to a defendants’ contacts within the forum, is at issue.

As the Court’s decision states, Plaintiffs offer three independent theories of specific jurisdiction: “first, that Moving Defendants purposefully availed themselves of the United States by marketing and transacting MGBs here via their non-party affiliates’ New York desks; second, that Moving Defendants are subject to personal jurisdiction based on the effects on the Plaintiffs in the United States; and third, that Moving Defendants are subject to personal jurisdiction on a conspiracy jurisdiction theory.” The Court’s decision would go on to reject each of these three theories.

When addressing Plaintiffs’ first theory, the Court cited Charles Schwab Corp. v. Bank of America Corp., 883 F.3d 68 (2d Cir. 2018) as controlling precedent for the proposition that due process requires that there be a causal connection between defendants’ U.S. contacts and defendants’ fraud. The Court in Schwab held that there could not personal jurisdiction over claims of fraud through defendants’ daily LIBOR submissions made in London, even though instruments incorporating those fraudulent rates were later sold by defendants in California, the forum state. Judge Oetken’s decision notes that the SAC alleges that each of the three anticompetitive agreements, including the agreement to inflate the prices of the Mexican Government Bonds on the “over-the-counter” (secondary) market after they were originally issued at auctions held by the Mexican Government, occurred in Mexican alone.

Thus, since the anticompetitive conduct occurred in Mexico, the Court concludes that the fact that non-party affiliates’ trade desks and broker dealers were used to market and sell the bonds in the United States cannot be a basis for conferring personal jurisdiction. The Court essentially dismisses Plaintiffs’ argument that they would not have been injured in the absence of the Defendants’ use of New York sales desks as conflating the antitrust standing requirement with the requirement that there be personal jurisdiction in accordance with due process principles.

The Court also cited Schwab when denying Plaintiffs’ theory that the effect upon Plaintiffs in the United States confers personal jurisdiction. Where the anticompetitive conduct occurs outside of the forum, in-forum effects harmful to the plaintiff can only confer personal jurisdiction in accordance with due process principles if the defendant “expressly aims” its conduct at the forum. It is not enough that the effects be “merely foreseeable.” Since Schwab held that the sale by defendants to plaintiffs in California of LIBOR-incorporating instruments did not constitute conduct “expressly aimed” at California, Judge Oetken’s decision held that the effects upon by Plaintiffs in the United States by Defendants in Mexico similarly cannot confer personal jurisdiction here.

Finally, the Court rejected Plaintiffs’ theory that conspiracy jurisdiction confers personal jurisdiction. Conspiracy jurisdiction requires that a co-conspirator commit over acts in furtherance of the conspiracy within the forum. The Court reasoned that since none of the defendants could be found to be subject to personal jurisdiction under the other two theories, the requirement that a co-conspirator commit over acts in furtherance of the conspiracy within the forum could therefore also not be met.

In its decision, the Court essentially states that its determination that Plaintiffs have failed to make a prima facie showing of personal jurisdiction and granting of the motion to dismiss was not a reflection of the “wisdom” of what it referred to as Schwab’s “parsimonious approach.” The Court stressed that it was required to follow Schwab as precedent, at least until the Supreme Court weights in on this issue.

The Court’s decision also denied Plaintiffs’ request for “limited discovery to confirm that Defendants fixed the prices of Plaintiffs’ in-forum MGB trades” because Plaintiffs had failed to make their prima facie case for personal jurisdiction and the Court did not see how such requested discovery could cure the issue of personal jurisdiction.

As always, please stay tuned to this blog to be kept apprised of further updates regarding In re MGB, including any potential attempts at re-argument or appeal of the Court’s decision.

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 jlundin@schlamstone.com or John F. Whelan at jwhelan@schlamstone.com or call John Lundin or John Whelan at (212) 344-5400.

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