Posted: April 30, 2021

Second Circuit Grants Article III Standing On Appeal and Revives SIBOR Class Action

Second Circuit Grants Article III Standing On Appeal and Revives SIBOR Class Action

In Fund Liquidation Holdings LLC v Bank of Am. Corp., the Second Circuit overturned the Southern District’s decision to dismiss two Cayman Islands investment funds’ claims against numerous international banking institutions for lack of subject-matter jurisdiction. In doing so, the Second Circuit revived a class action against numerous banks for conspiring to manipulate Singapore-based benchmark rates, “SIBOR” and “SOR.”

Back in 2016, Cayman Islands investments funds, FrontPoint Asian Event Fund, L.P. (“FrontPoint”) and Sonterra Capital Master Fund, Ltd. (“Sonterra”) initiated a class action complaint in the Southern District against several of the banks on Singapore’s Association of Banks alleging that they conspired to manipulate SIBOR and SOR.

The First Amended Complaint (“FAC”) alleged violations of the Sherman Act stemming from Defendants’ manipulation of SIBOR and SOR that affected the price of U.S. interest rate swaps, forward rate agreements, FX swaps and FX forwards. Much of the evidence used to support the claims came from an investigation in 2013 by the Monetary Authority of Singapore that revealed the conspiracy.

The district court held that FrontPoint satisfied both prongs of the antitrust standing requirement because (i) FrontPoint transacted in U.S.-based swaps that were benchmarked based on SIBOR during the class period and thus, (ii) FrontPoint has suffered an injury that the Sherman Act seeks to prevent. The district court also held that the Plaintiffs lacked jurisdiction over several of the foreign Defendants and issued an order granting in part and denying in part Defendants’ motion to dismiss Plaintiffs’ First Amended Complaint.

In that order, the Court granted Plaintiffs leave to amend; they accordingly filed their Second Amended Complaint (“SAC”).The SAC revealed that FrontPoint and Sonterra had both been dissolved years prior to filing the initial action and were no longer in operation. The dissolved funds claimed that they both assigned their claims to Fund Liquidation Holdings LLC (“Fund Liquidation”). For a full review on the allegations made in the SAC, see out post, “Alleged Manipulation of the Singapore Benchmark Rates

The district court allowed Fund Liquidation to substitute into the action and file a Third Amended Complaint (“TAC”). In response to the TAC, Defendants moved to dismiss on grounds that Fund Liquidation could not substitute in under Federal Rule of Civil Procedure 17(a)(3) because the initial claims were null from the outset and further, that since the statute of limitations had now run, the amended complaint was time-barred. The Defendants also challenged whether claims had been properly assigned to Fund Liquidation.

By order dated July 25, 2019, United States District Judge Alvin Hellerstein denied Fund Liquidation’s request to file a Fourth Amended Complaint, and granted Defendants motion to dismiss for lack of subject matter jurisdiction, lack of personal jurisdiction over certain Defendants, and failure to state a claim upon which relief can be granted.

The Second Circuit Weighs In

Plaintiffs appealed the July 25, 2019 decision, arguing, first, that the dissolved funds had Article III standing when the case was initiated, and, second, that even absent such standing on the part of the dissolved funds, Fund Liquidation was able to join the action under FRCP Rule 17 because, at all relevant times over the course of these actions, Fund Liquidation had standing to join the action. In their March 17, 2021 decision, the Second Circuit concluded that, while the dissolved funds did lack standing, Article III was “nonetheless satisfied” because Fund Litigation had standing and was able to “step into the dissolved entities shoes without initiating a new action from scratch.”   Accordingly, the Second Circuit vacated the district court’s judgment, and remanded the case for further proceedings.

The Dissolved Funds

The Defendants argued that the dissolved funds lacked standing for two reasons: (1) by the time the original complaint was filed the dissolved funds had already assigned their claims to Fund Liquidation and (2) the dissolved funds had ceased to exist legally under Cayman Islands law.

The Second Circuit addressed the Defendants’ arguments as follows:

A pre-suit assignment doesn’t extinguish Article III standing because there is a distinction between being the true interested party in a suit and having standing to pursue it. In Lujan V. Defs. Of Wildlife (U.S. 1992) SCOTUS established three elements that are required for Article III Standing, (i) injury in fact (ii) a causal connection between the injury and the conduct, and (iii) redressability. The Second Circuit explained that an assignment has no bearing on the first two elements at all. Regarding the third element of redressability, the Second Circuit cited to Sprint Communications Co. v. APCC Services, Inc. (U.S. 2008). In Sprint, SCOTUS focused on whether the injury the plaintiff suffered is likely to be redressed through the suit at bar rather than whether the plaintiff was entitled to such relief. Here, the injuries alleged by the dissolved funds are no less redressable simply because they were assigned to another party.

A pre-suit dissolution does extinguish both legal existence and Article III standing. Under Cayman Islands law, a dissolution bars the dissolved entity from taking any legal action and thus, any proceedings brought in their names are a nullity. Moreover, unlike other U.S. jurisdictions, the Cayman Islands do not permit a dissolved entity to be restored. The Second Circuit determined that while federal law controls whether the dissolved funds have standing, Cayman Islands law controls whether has legal existence to support standing and here, the law is clear that the dissolved funds had no legal existence at the time the case was filed.

Fund Litigation

However, the Court posited that Fund Liquidation did have Article III Standing because as long as a party with standing is in existence at the time the pleading is filed, even if they are excluded from the complaint, and then joins within a reasonable amount of time, has Article III standing and the ability to join under FRCP Rule 17.

As the Second Circuit itself observed, this holding is “not a view adopted by many courts.”  The more common view, relied on by Defendants, is known as the “nullity doctrine.” This doctrine requires that an action commenced by a plaintiff who lacks Article III standing be rendered an incurable nullity even if the true interested party has standing and is willing to join.

After first observing that existing Second Circuit precedent did not require adoption of the nullity doctrine, the Court then explained, in considerable detail, why Article III standing does not “require” the nullity doctrine.

The Court stated that the “foundational view” on which the nullity doctrine is based was “immediately suspect, given its “tension with how pleading requirements have evolved over time.” First, allowing the real party in interest to join as an assignee does not create a new cause of action which would call into question subject-matter jurisdiction because the assignee merely “steps in the shoes of the assignor.” Fed. Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., 726 F.3d 62, 75 n.12 (2d. Cir. 2013). Second, Rule 17(a) permits joinder of the true interested party when it relates back to the original complaint, this is to ensure that the standing exists at the outset and that the interested party has a “stake in the outcome.” Davis v. FEC, 554 U.S. 724, 734, 128 S. Ct. 2759, 171 L. Ed. 2d 737 (2008). Lastly, other circuits have held that a plaintiff can cure a standing defect under Article III through the use of amended pleadings. Scahill v. District of Columbia, 909 F.3d 1177, 1184, 439 U.S. App. D.C. 69 (D.C. Cir. 2018); Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1337 (Fed. Cir. 2008).

Additionally, the Court addressed the more specific issue at bar here which was whether a complaint filed in the name of a nonexistent entity, on behalf of an unidentified real party in interest, meets the requirement in Davis, that the party invoking jurisdiction have a requisite stake in the outcome at the time the suit is commenced. The Court answered in the affirmative, stating that to ignore the real party in interest, with true legal title to the claim asserted, and with a stake in the controversy because the nominal plaintiff lacks standing would be “nonsensical.” Moreover, the Court cited to its decision in St. Paul Fire & Marine Ins. Co. v. Universal Builders Supply, 409 F.3d 73, 80-81 (2d Cir. 2005) where the Court held that nominal parties are often ignored for purposes of establishing diversity jurisdiction. This reasoning is follows FRCP Rule 17(a)(3) which allows joinder of a true interested party when it relates back to the original commencement of the suit.

Thus, because Fund Liquidation was in existence as the true interested party at all relevant times and willingly joined the complaint in a reasonable amount of time, the Second Circuit found Article III to be satisfied, and, on those grounds, vacated the judgment of the district court and remanded the case for further proceedings.

This post was written by Hannah R. Zelcer.

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 Hannah R. Zelcer at or call John Lundin or Hannah Zelcer at (212) 344-5400.

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