Argued: November 13, 2015
Plaintiffs-appellants,
comprising individuals and entities that held diverse
financial instruments, allege that the defendant banks
colluded to depress a benchmark incorporated into those
instruments, thereby decreasing the instruments'
financial returns in violation of Section One of the Sherman
Act. The United States District Court for the Southern
District of New York (Buchwald, J.) dismissed the
lawsuit for failure to allege antitrust injury. We vacate the
judgment and remand for further proceedings consistent with
this opinion.
THOMAS
C. GOLDSTEIN (with Eric F. Citron on the brief), Goldstein
& Russell, P.C., for Plaintiffs-Appellants Ellen Gelboim
and Linda Zacher in Case No. 13-3565.
ROBERT
F. WISE, JR. (with Arthur J. Burke & Paul S. Mishkin on
the brief), Davis Polk & Wardwell LLP, for Defendants-
Appellees Bank of America Corporation, Bank of America, N.A.,
and Merrill Lynch, Pierce, Fenner & Smith, Inc. (f/k/a
Banc of America Securities LLC) (additional counsel for the
many parties and amici are listed in Appendix A)
Before: JACOBS, RAGGI, and LYNCH, Circuit Judges.
DENNIS
JACOBS, Circuit Judge
Appellants
purchased financial instruments, mainly issued by the
defendant banks, that carried a rate of
return indexed to the London Interbank Offered Rate
("LIBOR"), which approximates the average rate at
which a group of designated banks can borrow money.
Appellees, 16 of the world's largest banks ("the
Banks"), were on the panel of banks that determined
LIBOR each business day based, in part, on the Banks'
individual submissions. It is alleged that the Banks colluded
to depress LIBOR by violating the rate-setting rules, and
that the payout associated with the various financial
instruments was thus below what it would have been if the
rate had been unmolested. Numerous antitrust lawsuits against
the Banks were consolidated into a multi-district litigation
("MDL").
The
United States District Court for the Southern District of New
York (Buchwald, J.) dismissed the litigation in its
entirety on the ground that the complaints failed to plead
antitrust injury, which is one component of antitrust
standing. The district court reasoned that the LIBOR-setting
process was collaborative rather than competitive, that any
manipulation to depress LIBOR therefore did not cause
appellants to suffer anticompetitive harm, and that they have
at most a fraud claim based on misrepresentation. The
complaints were thus dismissed on the ground that they failed
to allege harm to competition. We vacate the judgment on the
ground that: (1) horizontal price-fixing constitutes a
per se antitrust violation; (2) a plaintiff alleging
a per se antitrust violation need not separately
plead harm to competition; and (3) a consumer who pays a
higher price on account of horizontal price-fixing suffers
antitrust injury. Since the district court did not reach the
second component of antitrust standing --a finding that
appellants are efficient enforcers of the antitrust laws--we
remand for further proceedings on the question of antitrust
standing. The Banks urge affirmance on the alternative ground
that no conspiracy has been adequately alleged; we reject
this alternative.
BACKGROUND
"Despite
the legal complexity of this case, the factual allegations
are rather straightforward." In re: LIBOR-Based Fin.
Instruments Antitrust Litig., 935 F.Supp.2d 666, 677
(S.D.N.Y. 2013) ("LIBOR I"). Appellants
entered into a variety of financial transactions at interest
rates that reference LIBOR. Because LIBOR is a component or
benchmark used in countless business dealings, it has been
called "the world's most important
number."[1] Issuers of financial instruments typically
set interest rates at a spread above LIBOR, and the interest
rate is frequently expressed in terms of the spread. LIBOR
rates are reported for various intervals, such as one month,
three months, six months, and twelve months.
The
LIBOR-based financial instruments held by the appellants
included: (1) asset swaps, in which the owner of a bond
pegged to a fixed rate pays that fixed rate to a bank or
investor while receiving in return a floating rate based on
LIBOR; (2) collateralized debt obligations, which are
structured asset-backed securities with multiple tranches,
the most senior of which pay out at a spread above LIBOR; and
(3) forward rate agreements, in which one party receives a
fixed interest rate on a principal amount while the
counterparty receives interest at the fluctuating LIBOR on
the same principal amount at a designated endpoint. These
examples are by no means exhaustive.
The
Banks belong to the British Bankers' Association
("BBA"), the leading trade association for the
financial-services sector in the United Kingdom. During the
relevant period, the BBA was a private association that was
operated without regulatory or government oversight and was
governed by senior executives from twelve
banks.[2] The BBA began setting LIBOR on January 1,
1986, using separate panels for different currencies.
Relevant to this appeal, the U.S. Dollar ("USD")
LIBOR panel was composed of 16 member banks of the BBA.
The
daily USD LIBOR was set as follows. All 16 banks were
initially asked: "At what rate could you borrow funds,
were you to do so by asking for and then accepting inter-bank
offers in a reasonable market size just prior to 11
a.m.?" Each bank was to respond on the basis of (in
part) its own research, and its own credit and liquidity risk
profile. Thomson Reuters later compiled each bank's
submission and published the submissions on behalf of the
BBA. The final LIBOR was the mean of the eight submissions
left after excluding the four highest submissions and the
four lowest. Among the many uses and advantages of the
LIBOR-setting process is the ability of parties to enter into
floating-rate transactions without extensive negotiation of
terms.
Three
key rules governed the LIBOR-setting process: each panel bank
was to independently exercise good faith judgment and submit
an interest rate based upon its own expert knowledge of
market conditions; the daily submission of each bank was to
remain confidential until after LIBOR was finally computed
and published; and all 16 individual submissions were to be
published along with the final daily rate and would thus be
"transparent on an ex post
basis."[3]Thus any single bank would be deterred from
submitting an outlying LIBOR bid that would risk negative
media attention and potential regulatory or government
scrutiny. Collectively, these three rules were intended as
"safeguards ensuring that LIBOR would reflect the forces
of competition in the London interbank loan
market."[4]
Although
LIBOR was set jointly, the Banks remained horizontal
competitors in the sale of financial instruments, many of
which were premised to some degree on LIBOR. With commercial
paper, for example, the Banks received cash from purchasers
in exchange for a promissory obligation to pay an amount
based, in part, on LIBOR at a specified maturity date
(usually nine months); in such transactions, the Banks were
borrowers and the purchasers were lenders. Similarly, with
swap transactions, the Banks received fixed income streams
from purchasers in exchange for variable streams that
incorporated LIBOR as the reference point.
A LIBOR
increase of one percent would have allegedly cost the Banks
hundreds of millions of dollars. Moreover, since during the
relevant period the Banks were still reeling from the 2007
financial crisis, a high LIBOR submission could signal
deteriorating finances to the public and the regulators.
Appellants
allege that the Banks corrupted the LIBOR-setting process and
exerted downward pressure on LIBOR to increase profits in
individual financial transactions and to project financial
health. In a nutshell, appellants contend that, beginning in
2007, the Banks engaged in a horizontal price-fixing
conspiracy, with each submission reporting an artificially
low cost of borrowing in order to drive LIBOR down. The
complaints rely on two sources.
The
vast majority of allegations follow directly from evidence
collected in governmental
investigations.[5] The United States Department
of Justice ("DOJ") unearthed numerous potentially
relevant emails, communications, and documents, some of which
are referenced in the complaints and only a few of which are
referenced for illustrative purposes. Prompted by the DOJ
investigations, three banks--Barclays, UBS, and RBS--have
reached settlements over criminal allegations that they
manipulated and fixed LIBOR.
In
addition, the complaints rely on statistics. The DOJ compiled
evidence that from June 18, 2008 until April 14, 2009,
UBS's individual three-month LIBOR submissions were
identical to the later-published LIBOR benchmark that was
based on all 16 submissions; the statistical probability that
UBS independently predicted LIBOR exactly over approximately
ten consecutive months is minuscule. Furthermore, prior to
2007, the value of LIBOR had moved in tandem with the Federal
Reserve Eurodollar Deposit Rate ("FRED"), with
LIBOR tracking slightly above FRED. Beginning in 2007,
however, the two rates switched positions, and LIBOR did not
consistently again rise above FRED until around October 2011,
when the European Commission began an inquiry into
allegations of LIBOR-fixing. The complaints adduce other
analyses and phenomena to support the hypothesis that the
Banks conspired to depress LIBOR.
Procedural
History
This
sprawling MDL involves a host of parties, claims, and
theories of liability; the present appeal has taken a
circuitous route to this Court, having already once been to
the Supreme Court.
Four
groups of plaintiffs filed complaints that became subject to
the Banks' motions to dismiss; three of the complaints
were purported class actions. The members of one putative
class are the purchasers of "'hundreds of millions
of dollars in interest rate swaps directly from at least one
[d]efendant in which the rate of return was tied to
LIBOR.'" LIBOR I, 935 F.Supp.2d at 681
(quoting OTC Second Amended Complaint at 7 ¶ 12). The
district court helpfully labeled this group as
over-the-counter ("OTC") plaintiffs; the lead OTC
plaintiffs are the Mayor and City Council of Baltimore and
the City of New Britain Firefighters and Police Benefit Fund.
The members of the second putative class are bondholders who
allege that the conspiracy reduced the returns on debt
securities in which they held an interest. The lead
bondholder plaintiffs are: Ellen Gelboim, the sole
beneficiary of an individual retirement account that owned a
LIBOR-based debt security issued by General Electric Capital
Corporation; and Linda Zacher, a similarly situated
beneficiary with rights to a LIBOR-based debt security issued
by Israel.
Third,
the Schwab plaintiffs, who filed three separate amended
complaints, [6] each assert injuries substantially similar
to those claimed by the OTC and bondholder plaintiffs.
Finally, the members of the third putative class (the
Exchange-based plaintiffs) claim injury from the purchase and
trading of contracts based on U.S. dollars deposited in
commercial banks abroad (Eurodollar futures contracts). The
buyer of a typical Eurodollar futures contract pays the
seller a fixed price at the outset and the seller in exchange
pays the buyer a "settlement price" at the end
date, calculated on the basis of the three- month LIBOR.
Options on Eurodollar futures contracts can be traded, and
their value depends on the settlement price. The seven lead
plaintiffs[7] allege that the Banks'
"suppression of LIBOR caused Eurodollar contracts to
trade and settle at artificially high prices, " reducing
gains made in trades. LIBOR I, 935 F.Supp.2d at 683.
The
Exchange-based plaintiffs commenced proceedings on April 15,
2011; the OTC plaintiffs followed a couple of months later;
and numerous individual cases accumulated. The Judicial Panel
on Multidistrict Litigation transferred and consolidated the
cases in the Southern District of New York. See In re:
LIBOR- Based Fin. Instruments Antitrust Litig., 802
F.Supp.2d 1380, 1381 (J.P.M.L. 2011). The Schwab and
bondholder plaintiffs subsequently enlisted. In addition to
the federal antitrust claims, the complaints assert numerous
federal and state law causes of action irrelevant to this
appeal.[8] After each group of plaintiffs amended
their respective complaints, the Banks moved to dismiss.
Several new complaints were added. As a management measure,
the district court stayed the filing of new complaints until
resolution of the pending motions to dismiss. See LIBOR
I, 935 F.Supp.2d at 677.
The
motions to dismiss were granted based on the finding that
none of the appellants "plausibly alleged that they
suffered antitrust injury, thus, on that basis alone, they
lack standing." Id. at 686. This ruling rested
on three premises:
[2] "Plaintiffs' injury would have resulted from
[d]efendants' misrepresentation, not from harm to
competition, " because the LIBOR-setting process was
cooperative, not competitive. Id. at 688.
[2] Although the complaints "might support an allegation
of price fixing, " antitrust injury is lacking because
the complaints did not allege restraints on competition in
pertinent markets and therefore failed to "indicate that
plaintiffs' injury resulted from an anticompetitive
aspect of defendants' conduct." Id.
[3] Supreme Court precedent forecloses a finding of antitrust
injury if "the harm alleged . . . could have resulted
from normal competitive conduct" as here, because LIBOR
could have been depressed if "each defendant decided
independently to misrepresent its borrowing costs to the
BBA." Id. at 690.
The
district court rejected the notion that LIBOR operated as a
proxy for competition and distinguished cases cited by
appellants on the ground that they involved "harm to
competition which is not present here." Id. at
693.
The
ensuing motions to amend, made by the OTC, bondholder, and
Exchange-based plaintiffs, were denied on the ground that,
given "the number of original complaints that had been
filed" and "the obvious motivation to craft
sustainable first amended complaints containing all factual
and legal allegations that supported plaintiffs' claims,
the [district court] was entitled to rely on those pleadings
to contain the strongest possible statement of
plaintiffs' case based on the collective skills of
plaintiffs' counsel." In re: LIBOR-Based Fin.
Instruments Antitrust Litig., 962 F.Supp.2d 606, 626
(S.D.N.Y. 2013) ("LIBOR II"). The denial
of the motions to amend was also premised on the alternative
ground of futility because the proposed amendments lacked
allegations "that the process of competition was harmed
because defendants failed to compete with each other or
otherwise interacted in a manner outside the bounds of
legitimate competition." Id. at 627-28.
Appeals
filed by the bondholder plaintiffs and the Schwab plaintiffs
in 2013 were dismissed sua sponte for lack of
subject matter jurisdiction "because a final order ha[d]
not been issued by the district court as contemplated by 28
U.S.C. § 1291, and the orders appealed from did not
dispose of all claims in the consolidated action."
In re: LIBOR-Based Fin. Instruments Antitrust
Litig., Nos. 13-3565(L) & 13-3636(Con), 2013 WL
9557843, at *1 (2d Cir. Oct. 30, 2013). On a writ of
certiorari, the Supreme Court unanimously reversed, holding
that "[p]etitioners' right to appeal ripened when
the [d]istrict [c]ourt dismissed their case, not upon
eventual completion of multidistrict proceedings in all of
the consolidated cases." Gelboim v. Bank of Am.
Corp., 135 S.Ct. 897, 902 (2015).
To
alleviate any ensuing risks of piecemeal litigation, the
Supreme Court highlighted Federal Rule of Civil Procedure
54(b), which provides for the entry of partial judgment on a
single or subset of claims: "[d]istrict courts may grant
certifications under that Rule, thereby enabling plaintiffs
in actions that have not been dismissed in their entirety to
pursue immediate appellate review." Id. at 906.
Numerous plaintiffs in the MDL action availed themselves of
this mechanism, and these appeals were consolidated on April
15, 2015. See In re: LIBOR-Based Fin. Instruments
Antitrust Litig., No. 13-3565 (2d Cir. Apr. 15, 2015)
(Doc. 231). After extensive briefing on both sides, including
the submission of numerous amicus briefs, this appeal is now
ripe for disposition.
DISCUSSION
"We
review the grant of a motion to dismiss de novo,
accepting as true all factual claims in the complaint and
drawing all reasonable inferences in the plaintiff's
favor." Fink v. Time Warner Cable, 714 F.3d
739, 740-41 (2d Cir. 2013). The denial of leave to amend is
similarly reviewed de novo because the denial was
"based on an interpretation of law, such as
futility." Panther Partners Inc. v. Ikanos
Commc'ns., Inc., 681 F.3d 114, 119 (2d Cir. 2012).
An
antitrust plaintiff must show both constitutional standing
and antitrust standing. See Associated Gen. Contractors
of Calif., Inc. v. Calif. State Council of Carpenters,
459 U.S. 519, 535 n.31 (1983) ("Harm to the antitrust
plaintiff is sufficient to satisfy the constitutional
standing requirement of injury in fact, but the court must
make a further determination whether the plaintiff is a
proper party to bring a private antitrust action.");
Port Dock & Stone Corp. v. Oldcastle, Northeast,
Inc., 507 F.3d 117, 121 (2d Cir. 2007) ("Antitrust
standing is distinct from constitutional standing, in which a
mere showing of harm will establish the necessary
injury."). Like constitutional standing, antitrust
standing is a threshold inquiry resolved at the pleading
stage. See Gatt Commc'ns. v. PMC Assocs.,
L.L.C., 711 F.3d 68, 75 (2d Cir. 2013). In this case,
the harm component of constitutional standing is uncontested,
and easily satisfied by appellants' pleading that they
were harmed by receiving lower returns on LIBOR- denominated
instruments as a result of defendants' manipulation of
LIBOR. See Sanner v. Bd. of Trade of City of Chi.,
62 F.3d 918, 924 (7th Cir. 1995) (holding that farmers who
sold crop at allegedly depressed prices suffered harm
sufficient for Article III standing).
Less
clear is appellants' demonstration of an antitrust
violation and antitrust standing. The interplay between these
two concepts has engendered substantial
confusion.[9] To avoid a quagmire, this Court (among
others) assumes "the existence of a violation in
addressing the issue of [antitrust] standing."
Daniel v. Am. Bd. of Emergency Med., 428 F.3d 408,
437 (2d Cir. 2005) ("Thus, while the issue of an
antitrust violation in this case is by no means clear, for
purposes of this appeal we assume the alleged violation and
assess only plaintiffs' standing to pursue their
claim."). This expedient can cause its own
problems.[10] The district court proceeded directly to
the question of antitrust injury--omitting any mention of
antitrust violation--but then elided the distinction between
antitrust violation and antitrust injury by placing
considerable weight on appellants' failure to show
"harm to competition." LIBOR I, 935
F.Supp.2d at 688. Although we would not ordinarily consider
whether the complaints state an antitrust violation when
assessing antitrust standing, it is easy to blur the
distinction between an antitrust violation and an antitrust
injury, as the district court did; so we will examine both
for purposes of judicial economy.
I.
ANTITRUST VIOLATION
To
avoid dismissal, appellants had to allege an antitrust
violation stemming from the Banks' transgression of
Section One of the Sherman Act: "Every contract,
combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among the several States,
or with foreign nations, is declared to be illegal." 15
U.S.C. § 1; see Bell Atl. Corp. v. Twombly, 550
U.S. 544, 553-63 (2007). Schematically, appellants'
claims are uncomplicated. They allege that the Banks, as
sellers, colluded to depress LIBOR, and thereby increased the
cost to appellants, as buyers, of various LIBOR-based
financial instruments, a cost increase reflected in reduced
rates of return. In short, appellants allege a horizontal
price-fixing conspiracy, "perhaps the paradigm of an
unreasonable restraint of trade." NCAA v. Bd. of
Regents of Univ. of Okla., 468 U.S. 85, 100 (1984).
Since
appellants allege that the LIBOR "must be characterized
as an inseparable part of the price, " and since we must
accept that allegation as true for present purposes, the
claim is one of price-fixing. Catalano, Inc. v. Target
Sales, Inc., 446 U.S. 643, 648 (1980). In urging
otherwise, the Banks argue that LIBOR is not itself a price,
as it is not itself bought or sold by anyone. The point is
immaterial. LIBOR forms a component of the return from
various LIBOR- denominated financial instruments, and the
fixing of a component of price violates the antitrust laws.
See id.; see also United States v. Socony-Vacuum
Oil Co., 310 U.S. 150, 222 (1940) ("[P]rices are
fixed . . . if the range within which purchases or sales will
be made is agreed upon, if the prices paid or charged are to
be at a certain level or on ascending or descending scales,
if they are to be uniform, or if by various formulae they
are related to the market prices. They are fixed because
they are agreed upon." (emphasis added)); Plymouth
Dealers' Ass'n of No. Cal. v. United States, 279
F.2d 128, 132 (9th Cir. 1960) (holding that use of a common
fixed list price constituted price-fixing despite
independently negotiated departures from said list price).
Horizontal
price-fixing conspiracies among competitors are unlawful
per se, that is, without further inquiry. See
Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551
U.S. 877, 886 (2007) ("Restraints that are per
se unlawful include horizontal agreements among
competitors to fix prices . . . ."); Catalano,
446 U.S. at 647 ("A horizontal agreement to fix prices
is the archetypal example of such a practice [that is plainly
anticompetitive]. It has long been settled that [such] an
agreement to fix prices is unlawful per se.").
The unfamiliar context of appellants' horizontal
price-fixing claims provides no basis to disturb application
of the per se rule. See Arizona v. Maricopa Cty.
Med. Soc'y, 457 U.S. 332, 349 (1982) ("We are
equally unpersuaded by the argument that we should not apply
the per se rule in this case because the judiciary
has little antitrust experience in the health care industry.
The argument quite obviously is inconsistent with
Socony-Vacuum. In unequivocal terms, we stated that,
'[w]hatever may be its peculiar problems and
characteristics, the Sherman Act, so far as price-fixing
agreements are concerned, establishes one uniform rule
applicable to all industries alike.'" (alteration in
original) (quoting Socony-Vacuum, 310 U.S. at 222)).
Appellants
have therefore plausibly alleged an antitrust violation
attributable to the Banks, for which appellants seek damages.
II. ANTITRUST STANDING
Although
appellants charge the Banks with hatching and executing a
horizontal price-fixing conspiracy, a practice that is
per se unlawful, they are not "absolve[d] . . .
of the obligation to demonstrate [antitrust] standing."
Daniel, 428 F.3d at 437. Two issues bear on
antitrust standing:
[1] have appellants suffered antitrust injury?
[2] are appellants efficient enforcers of the antitrust laws?
The second raises a closer question in this case.
The
efficient enforcer inquiry turns on: (1) whether the
violation was a direct or remote cause of the injury; (2)
whether there is an identifiable class of other persons whose
self-interest would normally lead them to sue for the
violation; (3) whether the injury was speculative; and (4)
whether there is a risk that other plaintiffs would be
entitled to recover duplicative damages or that damages would
be difficult to apportion among possible victims of the
antitrust injury. See Port Dock, 507 F.3d at 121-22;
see also Associated Gen. Contractors, 459 U.S. at
540-44. Built into the analysis is an assessment of the
"chain of causation" between the violation and the
injury. Associated Gen. Contractors, 459 U.S. at
540.
The
district court, having found that appellants failed to
plausibly allege antitrust injury, had no occasion to
consider the efficient enforcer factors. We conclude that,
although the district court erred in finding that appellants
suffered no antitrust injury, remand is necessary for proper
consideration of the efficient enforcer factors.
A.
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