Antitrust Law Daily Wrap Up, ANTITRUST—D. Utah: Tying claims against UBS Bank over loan arrangement proceed, (Jul 11, 2016)

By Jeffrey May, J.D.

A married couple adequately alleged that UBS Bank violated the anti-tying provisions of the Bank Holding Company Act (BHCA) by providing them loans on the condition that they use the loan proceeds to purchase "risky" closed-end mutual fund (CEF) shares from UBS Puerto Rico, the federal district court in Salt Lake City, Utah, has ruled. The court rejected UBS Bank’s contentions that the plaintiffs, who claimed to have been "wiped out" and left with a loan balance of nearly $1 million after the value of the CEFs collapsed, failed to satisfy the pleading requirements for the first element of a tying claim under 12 U.S.C. § 1972—an anticompetitive tying condition (Morales v. UBS Bank USA, July 8, 2016, Parrish, J.).

UBS unsuccessfully contended that the plaintiffs did not establish an anticompetitive tie because: (1) their evidence of a tying condition was barred by the parol evidence rule; (2) the existence of a tying condition was implausible; (3) they failed to allege coercion; and (4) they lacked standing.

Although the plaintiffs admitted that the condition was imposed on them orally, the parol evidence rule was not applicable in the context of this case, the court held. The bank contended that the evidence of the illegal tying condition was barred by the parol evidence rule because the condition did not appear in the credit line agreements, which contained integration clauses. Under Utah law, the parol evidence rule was "a principle of contract interpretation," while this was a BHCA claim for a statutory violation, the court explained.

The court also rejected the bank’s assertion that the BHCA claim was implausible because it was contrary to the parties’ contractual agreements and description of the transaction. While the allegations might appear contradictory, they nonetheless survived a Rule 12(b)(6) motion to dismiss. The plaintiffs’ statements on Federal Reserve Form U-1 that "[N]o portion of the UBS Credit Line proceeds will be used to purchase, trade or carry securities" did not preclude the existence of an unlawful tying condition. Further, although the proceeds of the loans were in the plaintiffs’ possession and control before they ever allegedly purchased securities, they wrote a check to UBS Puerto Rico that was for substantially the same amount as the loan proceeds.

Coercion. The BHCA did not require proof of force or coercion, the court held, Thus, UBS Bank could not rely on a proposed interpretation of the BHCA issued by the Federal Reserve System, which stated that "a violation of [the BHCA] may occur only if the condition or requirement was imposed or forced on the customer by the bank." The courts had not adopted the interpretation proposed by the Federal Reserve, it was noted.

Standing. Lastly, the court ruled that the plaintiffs, as customers of UBS Bank, had standing to sue UBS Bank under the BHCA. Rejected were the defendants’ contentions that the plaintiffs’ injuries were "indirect and speculative."

State law claims. The husband and wife also alleged a breach of fiduciary duty under Utah state law. However, claims of an illegal contract and conversion were dismissed.

The case is No. 2:14-cv-00888-JNP-BCW.

Attorneys: Agustin Collazo Mejia (Agustin Collazo Mejia Law Office) for Carlos Gonzalez-Morales. Peter J. MacDonald (Wilmer Cutler Pickering Hale and Dorr LLP) and Stephen P. Horvat (Anderson & Karrenberg) for UBS Bank USA.

Companies: UBS Bank USA

Cases: Antitrust UtahNews