Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Mo.: Former bank affiliate employee could not sue for tying arrangement targeting customer, (Nov 12, 2014)

By Richard A. Roth, J.D.

A financial advisor who went to work for, then resigned from, Merrill Lynch and Bank of America (BofA) could not sue the bank for using an illegal tying arrangement to hold onto one of his former private clients, the federal district court in St. Louis has decided. The former employee had neither constitutional nor statutory standing to sue BofA for the claimed tying arrangement, the judge said (Bray v. Bank of America, November 6, 2014, Jackson, C.).

While in private practice, the financial advisor developed a six-year-long relationship with a corporate client, managing a portfolio that rose to nearly $70 million, according to the complaint. When the client decided to use Bank of America for asset management purposes, it arranged for the advisor to take a job with the bank and Merrill Lynch so that he could continue to handle the client’s accounts.

BofA was the lead lender for a six-bank syndicate that had extended a line of credit to the client’s parent company, the judge said.

The advisor’s relationship with BofA and Merrill Lynch did not go smoothly, leading him to resign after about 18 months. He hoped to take the client’s account with him when he left, but he was disappointed—the client and its account stayed behind. According to the advisor’s suit, the reason was that BofA threatened to declare the line of credit to be in default if the client moved its assets, which was an illegal tying arrangement.

Tying arrangements. There are four elements to a claim for an illegal tying arrangement under 12 U.S.C. §1972, the judge began:

1. The bank tied a product or service the customer wanted to the customer’s acceptance of a different product or service.

2. The tie was unusual in the banking industry.

3. The tie resulted in an anticompetitive arrangement.

4. The tie benefitted the bank.

Anyone injured by a violation of the ban can recover treble damages, the judge pointed out. However, the right to bring a suit requires that the plaintiff have both constitutional and statutory standing to sue.

Constitutional standing. The constitutional standing requirement comes from the limited jurisdiction of the federal courts, according to the judge. Federal courts have jurisdiction only over cases and controversies. Setting out a tying arrangement case or controversy against BofA required the advisor to describe an injury in fact that was caused by the bank’s actions and that the court had the ability to remedy.

The judge quickly dispensed with the claim that the advisor had constitutional standing, determining that he had not shown that BofA caused him any harm. The advisor left his job voluntarily, and his injury came from the decision by the client’s corporate parent not to follow him. If anyone was harmed by the bank’s alleged tying of the line of credit to the asset management services, it was the client’s parent, not the advisor, according to the judge.

Statutory standing. To demonstrate statutory standing, the advisor had to show that his injury was within the zone of interests the anti-tying statute was intended to protect, the judge then said. Specifically, the question was whether the tying ban was intended to protect persons other than a bank’s customers and competitors. While this question required more detailed analysis, the judge eventually decided that the advisor had again fallen short of what was needed.

While the question had not previously been specifically decided, the implications of the relevant precedents were that only competitors, customers, and persons closely related to customers had statutory standing, the judge said. The advisor was not such a person. He was neither a BofA customer, nor its competitor, nor a shareholder of the client or the client’s parent, who would have been the true targets of the tying arrangement.

Perhaps the advisor competed with Merrill Lynch after he quit, the judge observed, but he had not sued Merrill Lynch. He had only sued BofA, and he had not explained how he competed with the bank.

The case is No. 4:14-CV-01336-CEJ.

Attorneys: Patrick Ryan Bray, pro se. Christopher S. Koller (Rubin and Fortunato, PC) for Bank of America.

Companies: Bank of America; Merrill Lynch

Cases: Antitrust MissouriNews