Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Borrower's claims of LIBOR manipulation dismissed, (Apr 6, 2015)

By Jeffrey May, J.D.

A federal district court in New York City has dismissed claims against banks for conspiring to manipulate the London InterBank Offered Rate (LIBOR), which were brought on behalf of a borrower who defaulted on loans whose interest rates were pegged to LIBOR. The suit alleged that, but for the defendants' challenged conduct, LIBOR would not have been artificially inflated, the value of the borrower's bond portfolio of high-grade municipal bonds would not have dropped beneath the value necessary to collateralize the LIBOR-denominated loans with Citibank, and no default on the loans would have been declared (7 West 57th Street Realty Co. v. Citigroup, Inc., March 31, 2015, Gardephe, P.).

Antitrust injury. The antitrust claims had to be dismissed because the plaintiff failed to allege an antitrust injury resulting from the conspiracy among the defending banks—who were members of the British Bankers Association (BBA) and responsible for submitting interest rates that the BBA used to calculate the LIBOR for the U.S. dollar (USD-LIBOR)—to manipulate USD-LIBOR during the loan period. The court was persuaded by the decision of another court in the district that had addressed antitrust injury resulting from banks' manipulation of USD-LIBOR. In March 2013, it was decided that holders of bonds and other financial instruments failed to assert antitrust injury in multidistrict litigation against BBA member banks for conspiring to artificially suppress USD-LIBOR by understating their borrowing costs to the BBA.

“The theory of antitrust injury in the MDL and in the instant case is essentially the same,” according to the court. “In both actions, plaintiffs claim that defendants manipulated USD-LIBOR in such a way as to cause plaintiffs to suffer financial losses.” The court rejected the plaintiff's contention that the complaint in this case plausibly alleged antitrust injury because the LIBOR-setting process was defined as a competitive process distorted by the manipulation.

RICO claims. The plaintiff's RICO claims based on collective misrepresentations about the costs of borrowing to the BBA were time-barred. The RICO claim was not filed until 2013, but the borrower was on notice of the claim in 2008 when the Wall Street Journal published an article about the “divergence between [credit-default spreads ('CDS')] and LIBOR,” and no inquiry was pursued. Moreover, the RICO claims were barred by the doctrine of res judicata, because the borrower could have asserted these claims in a state court action brought by Citibank over the technical default.

Personal jurisdiction over foreign banks. The court also ruled that it did not have specific personal jurisdiction over the defending foreign banks. Assuming that the borrower resided in New York and was injured there, the foreign banks' suit-related conduct had to tie them to New York itself, not just to a plaintiff who happened to reside in New York. The complaint did not plead facts demonstrating that the LIBOR manipulation was done with the express aim of causing an effect in New York. The court also rejected the plaintiff's co-conspirator personal jurisdiction theory.

Lastly, personal jurisdiction under Rule 4(k)(2) of the Federal Rules of Civil Procedure, which permits broader minimum contacts analysis, was not available. In order for this provision to apply, the defendant must not be subject to jurisdiction in any state's courts of general jurisdiction. The plaintiff had not certified that the defendants were not subject to jurisdiction in any other state. Thus, claims were dismissed on personal jurisdiction grounds against the following foreign banks: Bank of Tokyo-Mitsubishi UFJ, Ltd., Barclays Bank PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings plc, HSBC Bank plc, Lloyds Banking Group plc, Cooperatieve Centrale Raifieisen-Boerenleenbank B.A., HBOS plc, the Norinchukin Bank, the Royal Bank of Canada, the Royal Bank of Scotland plc, Portigon AG, and Westdeutsche ImmobilienBank AG.

Leave to amend. The plaintiff was given an opportunity to file an amended antitrust claim, even though the court noted that it was unlikely that the plaintiff could plead facts sufficient to cure the defects outlined in the decision. The RICO claims, however, were dismissed with prejudice.

This is Case 1:13-cv-00981-PGG.

Attorneys: Andrew Hayes for 7 West 57th Street Realty Company, LLC. Alan M. Wiseman (Covington & Burling, LLP) for Citigroup, Inc., and Citibank, NA. Arthur J. Burke (Davis Polk & Wardwell) for Bank of America Corp., and Bank of America NA. David Harold Braff (Sullivan and Cromwell, LLP) for Barclays Bank PLC.

Companies: 7 West 57th Street Realty Company, LLC; Citigroup, Inc.

Cases: Antitrust RICO NewYorkNews