One of the most controversial and consequential antitrust rulings of the last few years came last March, when U.S. District Judge Naomi Reice Buchwald of Manhattan tossed class action claims under the Sherman Act against the banks on the London Interbank Offered Rate panel. Buchwald acknowledged that her holding was “incongruous,” considering that some of the bank defendants had already admitted to colluding to manipulate the benchmark Libor rate, which was used to set interest rates for trillions of dollars of securities. But the judge was convinced the class couldn’t show any antitrust injury. The Libor rate-setting process (in which individual banks report the interest rates they’re being charged to borrow, which are then averaged and reported daily) was cooperative, not competitive, she said. So even if the banks conspired to rig Libor, Buchwald held, any harm they caused was not from reduced competition — and since federal and state antitrust laws are intended to target conduct that impedes competition, they don’t apply to Libor manipulation.
The ruling shocked antitrust plaintiffs firms, which had sunk enormous expense into expert analysis of the alleged Libor conspiracy. They asked Buchwald for leave to file an interlocutory appeal of her ruling to the 2nd Circuit Court of Appeals. She refused (and pretty angrily, to boot), which means that it will probably be years before the 2nd Circuit gets to consider the question of whether collusive rate-rigging is anti-competitive. After Buchwald’s ruling, some Libor claimants, including the Federal Deposit Insurance Corporation in its recent suit against Libor panel banks, made the decision to assert breach-of-contract claims as their main cause of action. But that’s only possible when plaintiffs engaged in Libor-pegged transactions directly with the banks. Other Libor plaintiffs, like the National Credit Union Administration, are counting on the 2nd Circuit to overturn Buchwald’s interpretation of antitrust injury.
That hope looks a bit more remote after a ruling Friday by a Buchwald colleague, U.S. District Judge George Daniels, who is overseeing a class action alleging manipulation of two other benchmark interest rates, the Euroyen Tokyo Interbank Offered Rate (or Tibor) and the yen Libor. Daniels agreed completely with Buchwald’s analysis of antitrust injury, endorsing her controversial holding that collusive rate manipulation doesn’t amount to a horizontal antitrust conspiracy. That’s bad enough for plaintiffs who are hoping to revive Libor antitrust claims (which, of course, carry treble damages). But Daniels also rested his antitrust holding in part on the very 2nd Circuit case plaintiffs are relying upon to refute Buchwald. When a judge turns your own citation against you, that’s got to be discouraging. (I should note that Daniels kept alive class claims based on the Commodity Exchange Act, as did Buchwald in the U.S. dollar Libor litigation.)
The class in the Tibor and yen Libor case, represented by interim class counsel from Lowey Dannenberg Cohen & Hart, accused panel banks of harming investors in Euroyen Tibor futures by colluding to depress average interbank borrowing rates. Lowey Dannenberg alleged pretty much the same basic rate-rigging antitrust conspiracy as plaintiffs in the Libor class action, based on some of the same admissions from banks that have already reached Libor deals with U.S. and U.K. regulators. As you would expect, the Tibor and yen Libor defendants, which overlap with defendants in the U.S. dollar Libor litigation, relied heavily on Judge Buchwald’s ruling from last year in their joint motion to dismiss the Sherman Act and unjust enrichment allegations.
In the class response, Lowey Dannenberg came up with case law from the 2nd Circuit to counter the defendants — and Judge Buchwald. In Gatt Communications v. PMC Associates, the appeals court set out a test to determine antitrust standing that required plaintiffs to show, among other things, the effect of defendants’ allegedly anticompetitive practices. (Oddly, Buchwald did not cite the Feb. 14, 2013, Gatt decision, although her ruling in the U.S. dollar Libor litigation came down about six weeks after the 2nd Circuit’s holding.) The yen Libor class argued that under Gatt definitions, the anticompetitive effect of collusive rate manipulation was to harm securities investors who relied on fair rate reports. “Plaintiff’s alleged loss flows from that which makes the conduct illegal — collusive rate setting — so the antitrust laws are served by maintenance of his claim for injury,” the class brief said.